Mover Mike

I saw tthe sign this morning at the Chevron on MLK and Fremont, $3.799 for regular gas. I got to wondering, when people pay $3.50 for a decaf latte, is $3.799 really that bad? What is that in inflation adjusted dollars? I found this chart:

Another way to look at the price of gasoline is to compare the price to Europe. When Bev and I went to Europe in 2000, gasoline was about $4.00 U.S. there, and the chart shows we were $1.50. Notice the nominal price of gasoline broke out the same time as Gold.

Speaking of Gold, look at this second chart of Gold and Oil in 2004 dollars. Both peaked in about 1981. In todays inflation dollars Oil was about $90 a barrel. This month Oil has traded at $126. The two commodities have tracked each other fairly well over the years, Oil bottomed in the late 1990s, Gold in 2001. Oil went on to better its inflation adjusted high. For Gold to do so, it would have to trade over $1,600 to equal its 1981 high. My guess is that most commodities are trading at inflation adjusted highs and Gold will get back in sync before you know it.

In light of the recent Permanent Open Market Operations (POMOs) by the FED, $99 Billion since March 7, 2008, I throught this email from Chris Powell of GATA should be read by all:

Dear Friend of GATA and Gold:

The Federal Reserve's ever-increasing "short-term" lending to major commercial and investment banks, described in the news report appended here, is starting to recall the boast of Barrick Gold a few years ago that its huge gold loans were "evergreen," written for 15-year terms but always allowed to be extended for another year every year.

Barrick's suggestion was that its gold loans never had to be repaid — that they were gold loans from central banks and that the central banks did not want their gold back, that the central banks wanted instead for the gold price to be suppressed. By contrast, demanding repayment of the gold loans would cause a short squeeze in the gold market and send the price soaring. That's what central bank gold sales seem to be: not delivery of new gold into the market but cash settlement of old gold loans that can't be repaid without causing that short squeeze.

For who else would want to "lend" gold on the virtually indefinite terms available to Barrick? Who else would even be able to lend gold this way? Who else would want to do so? And what purpose could such loans have other than to suppress the price?

Does the Fed want its burgeoning loans to the commercial and investment banks repaid? Probably not any time soon, for all these "short-term" billions can be deployed to rig a lot of markets — not just the mortgage derivatives markets that are the center of attention but very possibly the commodities markets as well. Thus these loans would become just like the funds in the Fed's pool of repurchase agreements with the Fed's primary dealers in New York, a pool of funds that now stands near $300 billion. These funds too are nominally "temporary" loans, but the pool never goes back to zero or even close. To the contrary, it is usually growing and has nearly doubled over the last six months — and its only purpose is market rigging.

News organizations and Congress have not yet realized the purposes to which infinite money may be put and so haven't begun questioning all the money being flung around. But it's not about free-market capitalism; it's what's called lemon socialism, wherein private interests take any profits and the public assumes any losses.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

BTW, we have not had any POMOs since May of 2007 and that was for $1.396 Billion, a far cry from $94 Billion in nine operations in March, 2008.

Update:

I don't want to leave the impression that the FED is ballooning the money supply with these POMOs, when in fact they have been DRAINING operations. At last count these Outright Coupon Sales or Outright Bill Sales have continued daily for $5 Billion a day. Then since April 3rd they stopped. The total since starting, about $120 Billion.

This is the time of year for predictions. Often it pays to go reread economic commentary and I happened upon a Jim Puplava commentary written back on February 9, 2004, entitled Looking For The Next Bubble Inflation is Everywhere. Before you go to that article recall Fed Chairman Greenspan's comments in the WSJ, Greenspan on Euphoria, Bubbles and Fear

Former Federal Reserve Chairman Alan Greenspan has long argued that economic models don’t adequately capture the way the economy behaves. Mr. Greenspan expanded on that view Thursday night, saying human nature, which is prone to euphoria and fear, may be the principle driver, and it can’t be captured by economic models.

In a sense Greenspan said we can't predict bubbles or when they will collapse. Puplava on the other hand nailed it!

Unlike the inflationary 70’s when money and credit went into the real economy, since the early 80’s and accelerating into the 90’s, this new century money has been increasingly channeled into financial assets, creating asset inflation. This was visible first in the equity bubble of the late 90’s. New money created by the Fed to fight off a collapsing stock market bubble, recession, and a major terrorist attack led to additional bubbles in the bond market, mortgage and housing market, and finally in excess consumption in this new century.

[...]

Money and credit are no longer going into the real economy in the form of new investment in plant and equipment which would create new jobs. Instead credit and money creation is fed into the financial markets leading to multiple asset bubbles in the stock and bond markets and real estate.

[...]

Given this new aspect of America’s economic life and the fact that the Fed and the government have no inclination to live within their means or curtail rampant money creation, new asset bubbles are going to be inevitable. While one asset bubble may deflate as was the case in the NASDAQ and tech stocks from 2000-2002, other asset bubbles in bonds, mortgages, and real estate took its place.

So back in 2004, Puplava told us what to expect:

1. Printing Presses in Overdrive - we've seen M3 rise to the point where it is currently accelerating near 20%

   See Chart www.economagic.com

2. Currency Depreciation - since 2004 the USD has fallen from 86 to 75

   

3. Asset Bubbles in Natural Resources - since 2004 oil has gone from $33 to $100, Gold from $400 to $850, Silver from $6 to $15, and the CRB from 260 to 370.
4. Higher Interest Rates - the only thing that hasn't happened is higher interest rates, YET, and you have to ask why. Are investors in denial over inflation? I suspect, either the FED is buying all bonds offered or there's a bubble in bonds.

The FED knew what Puplava knew or should have. The FED is the cause of the bubbles and the collapse of bubbles. Back in September,2002, Ron Paul urged Congress to pass legislation to abolish the U.S. Central Bank.

Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve's inflationary policies. This represents a real, if hidden, tax imposed on the American people.

The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts.

[...]

In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans' standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.

Jim Puplava Predictions Ron Paul Federal Reserve

Update:

The BBC says minutes of the December 11th meeting of The Federal Reserve "say the credit crunch could lead to a situation that will require "substantial" rate cuts."

The stock market (DJIA) fell over 220 points, as Gold went to a new all time closing high and oil touched $100 a barrel. Bullish commodity investors see the FED abandoning the fight against inflation and going all out to fight the liquidity crisis brought on by the sub prime mess.

In addition, Yahoo announces U.S. Manufacturing Sector Contracts

The U.S. manufacturing economy unexpectedly contracted in December, ending a streak of 10 consecutive months of growth and sinking to its lowest point in almost five years, a private research group said Wednesday. The decline suggests that the overall economy may be weakening faster than some economists predicted.

The FED has placed itself in a difficult position, fight inflation and ruin the economy or abandon the dollar with lower interest rates, stoking inflation, and ruin the economy.

What a pickle for the FED and our fiat currency!

The Federal Reserve Interest Rates Mover Mike

You wouldn't know it by looking at the Business section in The Oregonian this morning recapping the best returns for 2007. The Financial Times, however, tells it like it is. Namely,

Gold rose to within striking distance of its record high on the last trading day of 2007...

Gold reached a session high of $843.20 a troy ounce on Monday, the highest level since January 1980, when bullion reached a record $850...

...2007 marked the sixth consecutive year of positive returns for gold....

Gold ended trading in New York at $833.20 a troy ounce, ...up by 30.9 per cent since the start of 2007.

Still, the public shows little interest in precious metals!

Gold precious metals Mover Mike

The WSJ has an article about the mortgage mess. All sorts of plans are being floated many for the purpose of shoring up the banks, many to bail out the homeowners.

One question is what exactly Washington policy makers should be trying to prevent. Does every homeowner facing foreclosure deserve help, or just some of them -- and how should the deserving be identified? At what point do banks' problems raising funds become a public concern?

The plan recently announced by the mortgage industry, with Bush administration support, could freeze interest rates on hundreds of thousands of troubled subprime mortgages that are set for rate increases over the next two years. But it won't help everyone. Borrowers can't have defaulted already. Some critics say the plan amounts to a rescue for the irresponsible, while others, particularly Democrats, say it won't fend off foreclosure for enough people. (Emphasis added)

I know that our interests are not served by millions of homes repossessed and thrown onto the market. Our interests are not served by market values of existing homes plummeting. Our economy would suffer greatly if we had hundreds of thousands of suddenly homeless.

On the other hand if my neighbor bought the house next door with zero down and a 1% mortgage, that is due to rise to current levels, and can't pay the mortgage at the higher rate, is it fair to have his rate frozen at this level. I was prudent and didn't use my equity to buy a second home at inflated prices. Doesn't a freeze reward stupidity or greed or lack of risk control? Shouldn't people who make mistakes be accountable?

Sometimes, as in the forest fire fighting business, our past policies of fire prevention have created catastrophic fires that can't be put out easily. So too in our economy. We have had a policy of no recessions. If your policy is recession prevention then little bankruptcies, small corrections never take place. Bubbles get created. This time we have created a financial mess that may be unstoppable. We may have no recourse, but the cleansing fire. And like those who lost their homes, we will rebuild, stronger, smarter and with a different currency.

FED Mortgages Mover Mike

From John Mauldin's Outside the Box

...something weird is going on here. Given the broad belief that the subprime crisis is only the beginning of a general financial crisis, and that the economy will go into recession, we would have expected major market declines by now.

When we add in surging oil and commodity prices, we would have expected all hell to break loose in these markets.

George Friedman of Stratfor notices the puzzle and his only explanation is money is coming into this country from China and the Arab world

It is the only explanation for what we are seeing. The markets should be selling off like crazy, given the financial problems. They are not. They keep bouncing back, no matter how hard they are driven down. That money is not coming from the financial institutions and hedge funds that got ripped on mortgages. But it is coming from somewhere. We think that somewhere is the land of $90-per-barrel crude and really cheap toys.

People are finally beginning to notice that the markets don't act like the should or like they used to. When I was a broker, a big down day was followed by another big down day. Sure maybe the market came back late to give you an idea that the next day would be calmer. Today, with the DJIA, frequently there is no follow through. It is as if each day has no memory of the previous day. Gold is trading without anchor to either oil or the dollar or the markets. Frequently, it goes down when the markets go down and rises when the markets rise. Oil rose to $95, gold was down. The CPI hits the highest level since 1979, Gold is down. It is, also, noteworthy how many time the market is down going into the close when a late rally comes from nowhere and sends the market to a higher close.

Friedman says his is the only explanation. I am beginning to wonder if there could be another explanation. Some group that would like you to be calm, think there is no problem, none at all.

John Mauldin's Outside the Box George Friedman Mover Mike

Many, like Michael Shedlock, who I read daily, see deflation ahead, but I see an inflation problem coming at us like a wild Bull Moose. He's been picking up speed while our government lies to us and now he's close, very close, to knocking us on our keister.

"The Producer Price Index for Finished Goods rose 3.2 percent in November, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today.

That's 38.4% Annualized!

Tuesday, investor and renowned oil man, T. Boone Pickens said

Oil prices will hit $100 a barrel before dipping to $80, and should pierce the triple-digit threshold within the next six months

Oil at the time was $90. (Oil jumped to $95 yesterday and dropped back to $92 today.) A ten dollar increase is 11% in 6-months. That is an annualized 22.2%!

Jesse's Café Américain quotes John Williams of Shadow Government Statistics saying that over the last 20 years or so

changes in methodologies have been implemented in reporting the key statistics, with the effect that economic statistics seem stronger than real growth, and inflation numbers tend to be weaker than reality, enough so that GDP (Growth Domestic Product) is overstated by three percent; the unemployment rate is really up around 12 percent as most people would look at it, and the inflation rate is now topping 11 percent."

The Irwins, readers of this blog, direct my attention to the latest from James Grant:

Central banks have been so focused on force-feeding financial markets with cash that they've overlooked a brewing inflation crisis, said Jim Grant, editor of Grant's Interest Rate Observer, on Wednesday.

PPI T. Boone Pickens Shadow Government Statistics

James Grant Mover Mike

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/4 percent.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4-3/4 percent.

Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time. Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

My Comment: It appears the FED is worried about the economy! It also wants us to believe that inflation is defined by rising prices, rather than increasing money and credit.

FED federal funds Mover Mike

I missed this news Saturday, but it fits in with something I posted in Inflate Or Die! Gulf Arab oil producers are considering revaluing their dollar-pegged currencies together. They wouldn't drop the peg, just change the ratio.

The dollar pegs force the region to shadow U.S. interest rates. Gulf central banks are cutting rates in tandem with the U.S. Federal Reserve to prevent currency appreciation, ignoring inflation at home which is running at its highest this decade.

With more Fed cuts expected and the dollar hitting record lows on global markets, investors expect the Gulf states to eventually give up on their pegs and allow their currencies to appreciate.

Gulf Arab oil producers USD Peg Mover Mike

Update:

Update:

Ever since Rob Kirby tipped us to the FED lowering interest rates by watching the interest rates for TOMOs, I have watched the day to day fluctuations. As recently as Friday, the high low range for Treasuries put up for collateral was 4.15 to 3.30%. That would mean with the U.S. Fed Target Rate at 4.50 , odds are that the FED will reduce rates another 1/4 to 1/2.

Now, there's a fly in the ointment, so to speak. Bloomberg has an article by Liz Capo McCormick and Sandra Hernandez entitled Price Measure Says Rate Can't Fall as Traders Expect. In it the authors say

Brian Sack head of monetary and financial market analysis at the Fed in 2003 and 2004, uses a chart that plots forward rates measuring investor expectations for inflation in five years. The gauge is so accurate that Sack and his colleagues persuaded the central bank to use it to help set policy. The chart is autographed by former Fed Chairman Alan Greenspan.

Right now, it shows current Fed Chairman Ben S. Bernanke may have less room to lower borrowing costs than investors in Treasuries anticipate, potentially setting bondholders up for a fall. The expected inflation rate, which Sack says replicates what Fed officials use, reached 2.91 percent last week, the highest since 2004, when the central bank began the first of an unprecedented 17 rate increases.

What will the FED do, continue to lower rates in the face of rising inflation expectations or throw the economy to the wolves, by acknowledging what I have been saying for months, inflation is much higher than the government lies?

Rising rates normally would help the dollar, but not if foreigners think our economy is going in the tank.

The FED has to inflate, there is no other option.

Brian Sack FED USD

On November 22, 2007. I posted What Fools Hedgers Are!

BOTTOM LINE: The hedge of 57,000 ounces to make a bank safe on a $3 Million loan has gone against EURO (345 X 57 000) by $19,665,000!

Euro Resources in a press release, said,

”We continue to seek the appropriate method of reducing our gold hedge position, ..."We are closely examining the alternative methods to effectively de-hedge, or offset, a portion of our current hedge position with Macquarie. This hedge limits the benefit to EURO of rising gold prices in the immediate future and we are considering the alternative approaches to this with a goal of an immediate partial offset of 10,000 ounces. Ideally, we would want to be fully de-hedged by end 2008.

They better hurry. Many analysts are looking for $1,000 Gold in 2008. Every $10 increase in gold is $570,000 lost to EURO and its shareholders. That's a total of $30,000,000 ($19,665,000+ 11,400,000) at $1000 Gold.

EURO Resources Gold Hedges Mover Mike

I caught up with Jeffrey Christian today. Not literally, but with Gold at $821.60, I wanted the famous CNBC regular to tell me what to expect now. I have commented a number of times on the almost ESP capabilities of the founder of the CPM Group and 1986 spin-off from Goldman Sachs. The last time here.

I spent almost an hour listening to him speak with with Jim Puplava on July 22, 2006, when his book Commodities Rising came out. He wasn't asked to make amy precious metal predictions, but a couple of things he said stood out:

First, prices of commodities in general have risen since 2003-2004 due to an investor shift in demand for commodities, mainly as a way to diversify from equities.

Second, there has been an overall upward shift in the demand curve by consumers. But, talk of a super-cycle in commodities lasting 17 years, give or take, is hype as is the hype about Chinese consumers.

Third, this market is long in the tooth. Bull markets in commodities generally last 34 to 39 months. At the time of the interview, the current bull market is about 55 months old.

Fourth, bull markets in commodities don't occur except in cases of wars; the Civil War, WWI and WWII. The rises in those markets began prior to an outbreak of hostilities.

I found it odd that he pooh-pooh the idea of a bull super-cycle in commodities, yet didn't say anything about the super-cycle bear market in Gold that went on for 25 years and ended in 2001.

On June 12, 2007, Jeffrey Christian delivered a talk, The Future of Precious Metals Markets at International Precious Metals Conference. He said:

The most obvious consequence of the growth in the world economy due to globalization and economic liberalization has been a sharp increase in the demand for most commodities, including precious metals, as increasing numbers of people become consumers financially capable of purchasing a wide range of manufactured goods, and services. This is a trend that already has had tremendous effects on commodities demand over the past decade. More importantly, if these trends are not reversed by any of the counter-vailing influences, the movement of more people into the consuming classes should continue for decades to come, with the effect of steadily increasing demand for precious metals and other commodities at a faster pace than has been the case over the past four decades. (emphasis added)

That sounds to me like a super-cycle! He also said:

Financial market commentators still complain about the practices of the Federal Reserve Board and other monetary authorities, but the truth is that monetary policy management in the United States, Europe, Japan, and many Asian nations has been extremely successful at protecting world economic trends since the early 1980s. It seems that monetary authorities have learned a great deal about how to do their job, which is to preserve long-term price stability insofar as possible.

I believe the speech was delivered prior to the sub-prime blow-up. I quoted Michael Shedlock when he said: The Fed caused the credit crunch by slashing interest rates to 1% to bail out its banking buddies in the wake of a dotcom bubble collapse. All the Fed did was create a bigger bubble.

Jeffrey Christian continues:

This suggests that both the hyper-inflation and the deep recessions of the 1970s may be avoided in the near future, barring major economic changes on a worldwide scale. It does not mean that inflation and recession have been banished from the economic system, nor that worldwide economic cycles are a thing of the past. It means that the cycles may be more muted and less destructive than they were prior to 1985. (emphasis added)

Jeffrey Christian nowhere suggests that demand and supply of gold are out of synch. In fact demand for Gold is estiamted to be somewhere around 3792 tonnes of gold and as you can see supply equals less than 2500 tonnes. The higher prices are not bringing on new supply.

Despite high prices, global gold mine production is actually falling. South Africa, the world's largest producer is at levels not seen since the early 1930s with production at roughly one quarter the level seen in 1970.

When I last visited Jeffrey Christian he said

Christian is on record saying that yes Gold could pop, but over the long term, gold is over valued and should average $500. Now he is calling for a seasonal AND cyclical peak of somewhere between $700 and $1,000 (why no precision here, I wonder) by April of 2007

Again, I ask, why does anyone pay any attention to this man?

Jeffrey Christian Gold Mover Mike

If you invest in Gold Mine stocks now or plan on doing so in the future, make sure the company does not hedge its production!

I was researching EURO Resources this morning because Golden Star Resources (GSS) was involved with a prospect of EURO's. EURO mentioned something about having a hedge against future production of 100,000 ounces of gold. The note said they had reduced the hedge by 50,000 ounces to 50,000 ounces.

I got digging through the balance sheet and look what I found in their third quarter report dated Nov. 15th 2007: The company in their list of liabilities has a Macquarie Bank Limited loan of 453,000€. Here's how that low originated:

The Company’s bank borrowings comprise a loan from Macquarie Bank Limited (“Macquarie”). This was drawn in two tranches:

The first tranche of $6 million was drawn on January 7, 2005, and used to pay the first installment of the Rosebel purchase price. The loan principal was repayable in nine equal quarterly installments of $666,667 commencing July 29, 2005. Final maturity is July 29, 2007. On April 26, 2007, Macquarie agreed to extend the principal payment due on April 29, 2007 until January 29, 2009. A fee of $13,333 was charged by Macquarie for this extension.

A second tranche of $3 million was drawn on September 30, 2005, and used to pay part of the second installment of the Rosebel purchase price. The principal amount is repayable in five equal quarterly installments of $600,000 commencing on October 29, 2007. Final maturity is on October 29, 2008.

It appears all they owe on the loan to buy the Rosebel Royalty is the 453,000€. But the bank wanted its loan to be protected in case Gold went down and required Euro to hedge a portion of the Rosebel royalty revenue against fluctuations in the market price for gold.

EURO therefore concluded two forward sale agreements for gold:

A forward sale agreement for 57,000 ounces of gold at $421 per ounce for settlement in 10 equal calendar quarter amounts of 5,700 ounces, commencing January 2005, settling 29 days after each calendar quarter. EURO settled its last forward sale agreement of 5,700 ounces of gold at $421 per ounce on July 31, 2007.

A second forward sale agreement for 57,000 ounces of gold at $458.50 per ounce for settlement in 10 equal calendar quarter amounts of 5,700 ounces, commencing July 2007, settling 29 days after each calendar quarter.

The second hedge is still outstanding: 57,000 ounces sold at $458.50. Gold is currently at $803.50! (803.50 - 458.50 = 345)

BOTTOM LINE: The hedge of 57,000 ounces to make a bank safe on a $3 Million loan has gone against EURO (345 X 57 000) by $19,665,000!

EURO writes on its Home page

At current gold prices, the Company expects to receive in excess of US$8 million in revenue from Rosebel during 2007. Management is actively seeking the acquisition of additional royalty interests.

It will take almost three years of revenues to buy the hedge back at current prices. Every $10 increase in the price of Gold is another minus $570,000 to EURO. Let's hope when EURO buys more royalties that hedging future production is not considered for the good of shareholders.

EURO Resources (TSX: EUR) Golden Star Resources (GSS) Mover Mike

UrbanSurvival has a stunning interview with Jim Rogers!

Jim Rogers USD Mover Mike

I last posted about James Turk and John Rubino's "Fear Index" back in April of 2006, here. You can go back and read that article to refresh your memory or you can stay right here and I'll do it for you. The Fear Index is based on the formula:

(US Gold Reserve) X (gold's Market Price) / M3 = Fear Index

When the Fear Index is falling (that is, when the number of dollars in circulation is rising faster than the market value of the gold in the U.S. reserves, or when the number of dollars is falling more slowly than the value of the gold reserves), the implication is that people are willing to hold these extra dollars because they're optimistic about the prospects of the dollar and/or the U.S. economy. When the Fear Index is rising (which occurs when money is flowing into gold, pushing up its exchange rate and raising the market value of U.S. gold reserves), it's usually because people are worried about the dollar or the health of the U.S. banking system and are looking for alternative stores of value.

At the time of the article, the Fear Index was at 1.23%, but had just given its fifth buy signal for Gold.

The question is where are we now? Assumming reserves are the same (261.5 Million ounces of gold) X (Gold is now about $800 an ounce) / The FED doesn't publish M3 anymore, but Ron Paul said M3 has been growing recently at 20%, let's say 10% that would put M3 at 9,735. Let's say 10,000 Billion. Using the formula the new Fear Index would equal 2.09%!

The conclusion of Turk and Rubino was this:

Assuming M3 grows at 8% a year over the next three years, and the Fear Index rises to 10%, implying that we’re worried as in the 1970s, the Fear Index yields a target gold price of $4,961 per ounce."

So far the index seems to be working just fine. Just thought you'd like to know!

Fear Index James Turk John Rubino Ron Paul

I have to wonder, is it just the round numbers that make reporters trot out their expensive jewelry stories or is it more sinister than that? Back on May 14, 2006, Gold traded over $700 an ounce when a story was trotted out entitled Jewelers dangling As gold prices skyrocket, retailers must decide whether to raise their prices to match the market. I posted about the story here.

Today, we first had Lauren Villagran pen Gold Deemed an Endangered Present in '07 followed by the Star Bulletin in Hawaii with this staff report entitled Rising gold prices may slow jewelers’ sales. Let me give you two examples why you should do what you want for your loved one and chuck these kind of stories in the trash. Back in 1984, I purchased a 1982 Panda,

a one-ounce gold coin for a woman I was dating. The Chinese Panda was unique. I bought a gold chain and had a bezel made to hold the coin. Total cost maybe $350. The Panda then was a limited minting of only about 15,000. Today, the 1982 Panda sells for nearly $3000!

Christmas before last, I bought my wife Beverly a half ounce gold American Eagle

and for about $230 plus the chain and bezel. Today that 1/2 ounce American Gold Eagle would cost $414.61.

And how is this for a pooh-pooh paragraph:

It's true that gold at $800 gold isn't the eye-popper it was in 1980 — an $800 ounce of gold then would be worth more than $2,000 an ounce today, adjusted for inflation. But the more gold in a piece of jewelry, the more shoppers will have to pay, and the more some of them will say no.

Think about this, many are saying that Gold will sell at $2,000 an ounce. Platinum is over $1,400 and Gold and Platinum used to trade at the same price. Gold usually trades at 15 times the price of oil. Many think oil will soon trade over $100 a barrel, that would indicate Gold should trade at $1,500.

So, here's a tip. Many jewelry stores have thousands of pieces of jewelry. Many can't or won't change their prices with every move in the price of gold. If you drop into Margulis Jewelers or many fine jewelry stores, you can ask to see the history of the piece. In many cases you can buy that piece for your loved one at or near the jewelers cost.

I've been writing about the coming big move in the price of Gold for quite some time. The "shake-my-head" sad part of this story to me is that many do what these reporters suggest and wait for a pullback. I can't rue the day I only bought 1/2 ounce or 1 ounce coin, but I sure can continue to accumulate when I'm flush.

JewelrySales Gold Mover Mike

Don't get me wrong, I love the U.S., but I'm none too happy with our politicians of either side for their lies. Now John Crudele reports that Argentina, long troubled by inflation, is learning from our pols how to deal with the problem of statistics.

The government of Argentina, beset by criticism over rampant inflation, said it is considering using the American way of calculating rising prices.

The idea, of course, is to make inflation disappear statistically even while it's quite obvious in real life.

[...]

As I mentioned in a column last Thursday, the way Washington calculates inflation allowed the Commerce Department to report that prices rose only 0.8 percent in the third quarter.

That is a quite tame inflation reading, even though commodities and other prices are telling a much different story.

The mild inflation number, in turn, permitted Washington to claim that the economy grew at a healthy annual rate of 3.9 percent in the quarter.

For each tick up in inflation the economy measured by the gross domestic product would have grown by that much less.

Update:

I wanted to add to this piece about how we have changed the CPI presentation so it reflects best what the pols want you to believe. However, the UrbanSurvival blog of Wednesday, November 14, 2007 report and came up with evidence that makes the CPI reports seem ludicrous.

Here's the headline from the Bureau of Labor Statistics:

The Producer Price Index for Finished Goods rose 0.1 percent in October, seasonally adjusted...

That would certainly make you believe the CPI numbers that inflation is tame and that the FED is doing the correct job by lowering interest rates to rev the economy.

UrbanSurvival urges you to look at Table A of the report. It says Change in finished goods from 12-months ago (unadjusted) 6.1%.

Table B says the change in Crude Goods 12 mo, (unadjusted) is 25.7%!

His point with Table A is the 6.1% increase in prices for finished goods is twice as high as the CPI (including food and energy. His second point is that with the PPI for crude goods (the stuff from which finished goods are made) up 25.7%, you can expect big increases in finished goods and the CPI. I would caution you not to believe the Governments lies!

One more thing, labor might get to the point, soon, where it feels the heat in the pocket book and demands higher wages. Then the Fed will have another problem. I know why not try wage and price controls again? We'll keep everyone happy, won't have to pay COLAs, and we can lower interest rates some more. Don't bother me with news of shortages.

CPI Producer Price Index PPI

Finished Goods Crude Goods Shortage

Pay attention! The U.S. Dollar went to a new all time low today, 76.00 and Gold went to another high, in after hours it is trading at $830.60. On August 31 2007, Gold closed the month at $673. (see chart). On the monthly chart, do you see the big triangle that was formed? Fist we had a high of $723 in May of 2006, a low of $560.50 in October of 2006; a high of $692 in April of 2007, Connecting those two highs with a straight line is the top of our triangle. We broke out in September of 2007, and it was confirmed by the breaking of the $692 high. Today we are at $830!

Now take a look at Silver. (see chart) In May of 2006 a high of $15.20, a period of profit taking or backing and filling, a High in February, 2007 of $14.69. Draw your line across those two highs. Same triangle as in Gold. Yesterday, the breakout was confirmed by the breaking of the $14.69 high, by a close of 14.732, but today we took out the may high of $15.20. In after hours trading right now Silver is trading at $15.74. IMHO, we are looking at least $20.00 Silver, and $1.000 Gold.

I bought shares of the new Silver ETF. (SLV) today at $15, as my way to participate more in the precious metals market. Basically, one share represents 10 ounces of silver.

Gold Silver iShares Silver Trust (SLV)

Update:

Saturday's UrbanSurvival.com threw down a challenge:

So here's your homework Go to the Google News Search Engine and look up gold. Here, I will do it for you. Now, click on any of the stories about gold hitting new highs. Then, using your browsers word search function, look for the word inflation in each story.

It's my view that if a report deals with gold prices from 1980 (the last time it was over $800) and doesn't mention the inconvenient truth about inflation and the fraud of a 'strong dollar policy' then the reporter is either in league with the Powers That Be, or should go back to writing obits until they can at least report reasonable context.

Google says there are 284 entries, but I was able only to actually click on 24. There are 11 that mentioned inflation in their gold story and are quoted here. Several mentioned the weak dollar, but none mentioned the fraud of a 'strong dollar policy'

AP: "The commodities markets rallied Friday as the dollar skidded to fresh lows, driving investors to seek an inflation hedge in holdings of crude oil, gold and other raw materials."

MarketWatch: For gold, "the underlying trend remains bullish as oil prices remain high and fuel inflation concerns, while remaining worries about the U.S. economy should support safe-haven investment," Action Economics analysts said.

AP: "The wider market is a bit concerned that we may be trapped between the need for (interest) rate cuts because of a slowing economy and the need for stable rates, or even rate rises, if inflation is really going to pick up," said Stephen Briggs, Societe General metals analyst.

MarketWatch: "The benchmark contract surged above $800 for the first time since 1980 on Wednesday, extending its recent rally after the Federal Reserve said that the recent spike in commodity prices may put renewed upward pressure on inflation."

Then they show this nice little chart showing the XAU for the last year:

The XAU is a capitalization weighted index.and the HUI is an modified equal dollar weighted index. The XAU was started on January 1979 with a value of 100 and the HUI was started on March 15,1996 with a value of 200. These indices by themselves do not have many components and only represent a few companies in the Gold sector of the Stock Market. HUI contains 15 stocks and XAU contains 16 stocks.

AFP: Gold futures for December touched 800.80 dollars on the exchange (NYMEX) after the Fed made the cut amid a persistent housing slump and fears of inflation spurred by record high crude oil prices.

Reuters: Fund managers and analysts said on Wednesday they expected the price of gold to rise further on inflation fears and a slumping dollar after U.S. gold futures breached $800 following the Federal Reserve's rate cut.

AP: Gold last topped $800 an ounce in 1980, when prices reached as high as $875 an ounce in January. Adjusted for inflation, an $800 ounce of gold in 1980 would be worth more than $2,000 today.

I love this one: EarthTimes: "Recent increases in energy and commodity prices and other factors may put renewed upward pressure on inflation, it added." Do you suppose energy and commodity prices are reacting to inflation rather than causing it? After all, what is inflation, but the debasement of the currency by the FED.

Again the same cause: CBC: "Higher oil prices raise fears of inflation, and gold is a classic hedge against rising prices."

Brisbane Times: "Gold is used by investors as a hedge against inflation, while a lower dollar makes gold, which is denominated in the greenback, cheaper for holders of other currencies."

Then there"s BusinessWeek: "Jewelry demand isn't expected to suffer dramatically, either. That's partly because gold prices would have to top $2,000 an ounce to reach the inflation-adjust peak of 1980 -- $800 simply isn't as astonishing as it was nearly 30 years ago. At that time, gold rose as high as $893.10, according to figures provided by Thomson Financial." It wasn't too long ago the Larry Kudlow pooh-poohed oil's rise, when it breached $40, because adjusted for inflation the old high was about $100. Well, Larry, we hit $95.10 this week (see chart).

Here's a remarkable prediction made on Oct. 31st, 2007, by George Gero, vice president of RBC (NYSE:RY) Capital Markets Global Futures. CNN: "On Wednesday (two days prior to spike over $800) said he expects gold is headed for $800 an ounce due to the dollar's weakness, record-high oil prices -- which spark inflation concerns -- and worries about world political tensions. He points to the record open interest in the futures and options market for gold, which means there is much more money in the market than usual."

IMHO, Larry Kudlow will be astonished to see Gold trade above $2,000 an ounce!

Urban Survival Gold Mover Mike