Posted on 10/13/2007 9:27:13 AM PDT by frithguild
QUESTION: IN ALL history, on how many days was the price of gold higher than it was just yesterday? The answer is four.
To be sure, on one of those four incredible days — which all occurred in January 1980 — gold closed at $850 an ounce, a substantial 13% higher than yesterday's price of $747.40. So I suppose we could say that gold is still a long way from its all-time high.
But be patient. Gold is already up almost $47 an ounce from when I said in a September column that is was headed for $2,000. And back in 1980, its ascent to its then-historic $850 included a frantic 28% run for the peak in just a single week.
But in 1980 the bull case for gold was coming to an end. A spectacular climax, no question about it, but nevertheless an end. That's because in 1980 the Federal Reserve recognized that we were in an inflation crisis, and it had the courage to crank up interest rates to whatever level was necessary to defeat it.
Now a new bull case for gold is still young, with lots of room to run. Today's Fed is nearly blind to inflation risk, obsessed with bailing the economy out of the consequences of the subprime credit binge.
It's not just the Fed, either. No one seems really focused on inflation. And why should they be? Official measures like the CPI are heading down, after all. But those indicators lag reality. If I'm right about a new wave of inflation, it could take months or even years before it shows up in those statistics. Especially since inflation is being statistically masked by lucky flukes such as the flood of cheap consumer goods from China, artificially suppressing measured average prices.
What gold has done already — trading up to levels only exceeded on four days, ever — tells me that inflation is a real risk. The all-time high oil price tells me the same thing. So does the all-time low exchange rate of the U.S. dollar vs. foreign currencies.
But what's so great about the bull case for gold is that, by some ways of looking at it, you don't need to agree with me about inflation at all.
Some inflation skeptics say that the high gold price is a function of global growth, especially the rise of a new consumer class in China and India. The story goes that millions of people kept for decades in poverty and without property rights, suddenly find themselves — thanks to globalization — with both the money and the rights to buy gold for the first time. Whether it's jewelry to show off their new prosperity and freedom, or a store of value against the chance that they may someday lose that prosperity and that freedom, gold is the go-to consumer good.
Some inflation skeptics say that the high gold price is a function of geopolitical risk. With Iraq in chaos, and North Korea and Iran rising as nuclear threats, gold, they say, is fulfilling its time-honored function as a safe haven in perilous times.
I tend to think of gold strictly in monetary terms, but it's hard to ignore the idea that twin surges of global growth and global uncertainty should drive up demand for gold. Against this demand, not very much gold is actually being mined. Experts say that jewelry demand alone is now outstripping new mine production. It's not easy to bring new production into play quickly. You probably think there are plenty of mines out there, just waiting to swing into production. But don't forget what seasoned gold traders say about all those mines — "the definition of a gold mine is a hole in the ground with a liar standing on top of it."
That means that to meet today's demand, someone who already held gold has to be persuaded to part with it. And, quite obviously, that means that the price has to rise to do the persuading.
Now let's switch gears for a second. Suppose you're one of those permabears who thinks that the U.S. housing crisis and the subprime debt collapse is going to destroy economic growth on a world-wide basis. You don't have to be all that far out on the idiot fringe to believe that. Plenty of prominent Wall Street economists do.
If you believe that, then you must believe that all that gold demand from China and India will collapse when the U.S. economy destroys the world economy. But that just brings you back to my original case for gold — inflation.
Look at what's happening already. At the first whiff of a housing slowdown in the U.S. last year, Ben Bernanke stopped raising interest rates. Last month, after a little bout of market volatility triggered when some subprime mortgages went into default, Bernanke cut rates. Imagine what Bernanke would do if things started to really get bad. Interest rates would be back to 1% before you know it. I think they'd be zero, or even negative, if Bernanke thought he could pull it off.
Whether that would be enough to do anything about a housing collapse I have no idea. But I know that it would ignite a wave of inflation pressures. On top of the inflation pressures already initiated from the last time the Fed held rates that low — and which they never really addressed with correspondingly high interest rates — those new pressures would spike the CPI at least to 5%.
Five percent doesn't scare you? In 1971 inflation lower than that was enough to make President Richard Nixon impose wage and price controls on the entire national economy. Maybe you've forgotten, but 5% is a lot of inflation. And it tends to lead to 6%. And 7%. And so on...
There's no way out but up for gold now. Either the global boom continues and rising demand carries gold higher, or the boom goes bust and the consequent inflation does the job for gold.
The great economist John Maynard Keynes once called gold a "barbaric relic." And that's just about what most economists think today. And most investors in gold are derided as "gold bugs." It's perfect, isn't it? An investment with a nearly bullet-proof bull case behind it, yet one that the conventional wisdom utterly rejects. A contrarian's delight!
How to play it? There are so many ways. Me, I have a big stash of gold coins in a safe deposit box. But you could just as effectively invest in one of the exchange-traded funds that hold physical gold, such as the StreetTracks Gold Trust (GLD: 74.59, +0.68, +0.92%). Or you could buy the stock of mining companies — giants like Newmont Mining (NEM: 47.57, +0.54, +1.14%), and any of dozens of smaller more speculative companies (but don't forget what I said about the holes and the liars).
Donald Luskin is chief investment officer of Trend Macrolytics, an economics consulting firm serving institutional investors.
The notion of excluding the 'volatile' food and energy sectors is one that could only be embraced by a politician (or a moron...but I repeat myself). This is a valid policy if and only if you neither eat, nor drive a car, nor heat your home.
Inflation, overall inflation, is running well over 10% this year. I don't say that this will necessarily continue; the poiht here is that 'official' inflation figures are 100% USDA-inspected government crapola because those slimeballs are deliberately using an inflation measure that is A) false-to-fact and B) guaranteed to mislead.
Speaking of inflation, if one adjusts for it, how many 2007 dollars does it take to equate to 850 1980 dollars? In other words, if we adjust for inflation from 1980 until today, don't we have aways to go before we get near the gold prices that were seen in 1980?
Gold would have to be close to $2200 to equal what it did in 1980 in real dollars.
thanks
Go here
My friends parents are moving off the homestead. Her dad had buried gold and silver coin in the cellar. They have been looking for weeks and could never find it....my friend said a little prayer because she was about to give up and boom she hit pay dirt......As it turns out her dads little $400.00 investment years ago is now worth at least $4000.00
Just think if it had been put in the stock market — it would probably be worth $40,000.
Full CPI also includes such valuable indicators as, for instance, hides.
The FULL CPI is 2% for the rolling 12. I’d love to see any empirical evidence of 10% inflation as you claim.
To counter the long term issues we saw, I started a small business selling long term food storage (Rainy Day foods) hand grinders and wheat, etc. Got us thru the hard times and we got to eat our profits... You can't eat gold.
Old Russian saying - I would rather have 50 friends than 50 Rubles. Or in this case, 50 Krugerrands
After a decade of negative interest rates Americans are trained to stay deep in debt.
That debt must now be paid down, which is deflationary.
The Fed hates deflation and is pouring money into the economy to prevent it.
The stock market is responding.
Antiques and art are responding.
Long term rates are responding, headed up for the first time since mid 80s.
Gold is responding.
Buy GDX and enjoy the ride for the next 5-10 years.
BUMP
From 30 December of last year through 30 September of this year, this index is up 18.43%. Now, this study is local to St. Louis Metro area, and makes no representation about other cities. OTOH, St. Louis has for decades had a substantially lower cost-of-living than NY, Chi, LA, DC, Miami and so forth -- so those cities' changes at the grocer are likely higher than stated here. There will be regional variances fr/product to product, in any case. Just as a footnote, the only items that are actually down on the year are pork loin and bacon (we take an average of 3 brands for bacon). Eggs are up an astonishing 85.45% and olives (curiously) up 69.10%.
Second, on the wholesale level, there are a multitude of figures available. For food and energy, I like Time & Timing's presentation, as below:
Ranking of buying selected contracts from 01-03 to 09-30, contract year 2007
ctrct ----- average % ----- big %age moves
month move up down up down
Dec W_ 83.16 87.79 11.33 87.79 11.33
Nov S_ 33.82 37.30 4.32 37.30 4.32
Dec O_ 23.47 26.34 1.07 26.34 1.07
Nov CL 22.65 25.90 16.80 25.90 16.80
Nov DA 20.90 36.17 0.21 36.17 0.21
Dec CL 20.41 23.30 17.13 23.30 17.13
Dec HU 20.02 23.37 15.37 23.37 15.37
Nov HO 19.02 22.06 12.24 22.06 12.24
Dec CC 18.30 25.29 3.21 25.29 3.21
Nov FC 15.46 18.49 5.45 18.49 5.45
Dec LC 9.11 10.93 1.37 10.93 1.37
Dec CT 7.74 14.25 14.31 14.25 14.31
Dec LH -1.72 17.96 3.75 17.96 3.75
Dec KC -6.79 0.00 20.20 0.00 20.20
Dec NG -10.0 15.61 15.45 15.61 15.45
The mkt symbols are the usual ones, S_, W_, C_, O_ being soybeans, Chicago wheat, corn and oats, for example.. A couple that you may not be familiar with are: DA = Grade III Milk, CL = Light, Sweet Crude, KC = Arabica Coffee 'C', CT = Cotton #2, HU = Gasoline (now RBOB, formerly RFG II Harbor Unleaded, hence the symbol HU), CC = NY Cocoa.The relevant column in the table is the first one, the percentage change in price from first of the year through the end of Septamber. Column 2 duplicates column 4 and 3 duplicates 5 because this study is usually run over a number of years, not just one. Same comment for the ''average %''.
You can view the wholesale changes yourself, and an enormous number of variants thereon, at:
Just take the free signup, then log in, then go to The Big Enchilada (Universal Price Histories), fill out the data query form and then click on 'Show Performance Rank.'
The retail study is proprietary, unfortunately, and is these days created under contract to a local economic analysis company, so I cannot post it here.
All right, who are you and what have you done with SAJ?
In the wholesale study, I somehow omitted Dec Corn. It is down 9.72% from 01-03 through 09-30.
Boy am I confused? (...full moon?...Bosox in the playoffs?...what's going on?).
Or, were you being sarcastic and I just missed it?
;^)
Everything’s going up, but gold hasn’t kept pace with inflation.
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