Bernanke Should Listen to Gold!

The Pragmatic Capitalist ^ | 04/11/2011 | Tom McClellan

[SeekAndFind]

Ben Bernanke needs to wake up and listen to gold’s message.

Late in 2010, Fed Chairman Ben Bernanke was confident that inflation would remain low, and that the Fed could “remove policy accommodation” at the appropriate time. But rising food and gasoline prices are forcing him to start changing his tune. Here is a sampling:

“Overall, inflation remains quite low.” February 3, 2011

“The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation.” March 1, 2011

“I think the increase in inflation will be transitory.” April 5, 2011

Bernanke’s complacency seems to be weakening, and it may have come from an over reliance on the Consumer Price Index (CPI) numbers. The CPI data have continued to show low inflation in spite of the evidence that is all around us. Part of the explanation for that is the huge weighting of housing prices in the form of “owner equivalent rent”. The weighting of all housing items is 42% in the main CPI, and even more in the “core” rate which subtracts out food and energy. Housing prices have remained depressed due to oversupply in the wake of the housing bubble.

This week’s chart looks at the relationship between gold prices and the CPI inflation rate. It is important to note that the price plot for gold is shifted forward by 15 months to reveal how it used to give a really good leading indication for what the inflation rate would do. It does not show gold’s most recent zoom up above $1400/oz.

The correlation in the 1980s and 1990s was very high, except for a couple of instances when OPEC and Saddam Hussein but their thumbs on the scale. But then something strange happened starting in 2006. The once-great correlation seemed to suddenly break in 2006, and it has not gotten itself restarted. My guess is that rather than a breakdown in this relationship between gold and inflation, something else is happening to explain this: all of the heuristic adjustments, reweightings, and other monkeying with the calculations of the CPI have resulted in a huge misreporting of the actual inflation that we are all noticing.

John Williams of Shadow Government Statistics has done a lot of work on unwinding all of the adjustments that the US government statisticians have done over the years to “improve” the CPI calculations. He finds a much higher inflation rate of 9.6% for the 12 months ending in February 2011, versus the BLS version at 2.1%. So it just may be that the relationship between gold and inflation has not really broken down.

The breakdown is instead in the way that our government keeps track of it, which is sad, but not really a surprise. It is time for Bernanke and others to wake up to the message that gold is screaming to anyone willing to listen.

[SeekAndFind]

See here :

Gold Hits Record as Dollar Dips; Eyes on Fed

http://www.foxbusiness.com/markets/2011/04/11/precious-gold-hits-record-dollar-dips-eyes-fed/

EXCERPT :

LONDON – Gold hit record highs and silver a 31-year peak on Monday, lifted by elevated oil prices and a weaker dollar, amid expectations the Federal Reserve will lag other central banks in tightening monetary policy.

Precious metals have already been boosted this year by safe-haven demand after unrest swept the Middle East and North Africa and concerns resurfaced over the debt levels of some smaller euro zone economies, most notably Portugal.

Spot gold rose as high as $1,476.21 an ounce and was bid at $1,473.10 an ounce at 0908 GMT, against $1,472.70 late in New York on Friday. Silver hit its highest since early 1980 at $41.93 and was later at $41.36 an ounce against $40.85.

“Looking across the board, over the last week there has been investor interest in the metals,” said Jeremy East, global head of commodity derivatives trading at Standard Chartered, which last week predicted gold could hit $2,100 an ounce by 2014 on the back of dollar weakness and low interest rates.

Gold is better supported than silver, which has a dual role as an investment vehicle and an industrial commodity, he said, although silver has outperformed gold so far this year, with the gold:silver ratio dropping to 28-year lows.

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[Darksheare]

“Late in 2010, Fed Chairman Ben Bernanke was confident that inflation would remain low”

It is impossible for inflation to remain low when you purposefully devalue and debase your currency through “quantitative easing”.

[Larry Lucido]

I used to listen to David Gold. :-)

[Hoodat]

Late in 2010, Fed Chairman Ben Bernanke was confident that inflation would remain low

Assuming this is true, the Bernanke was also confident that unemployment would remain in double digits for quite some time.

• Bernanke knows that he has led a sizable expansion of the money supply.
• Bernanke knows that expansion of the money causes devaluation of the currency
• Bernanke know that devaluation of the currency leads to inflation
• Bernanke knows that inflation if left unchecked leads to more inflation
• Bernanke knows that the only check for inflation is unemployment

So, is Bernanke lying about inflation? Or does Bernanke simply know that we are screwed with high unemployment for years to come.

[Darksheare]

I think Bernanke is doing this: “Screw you all, I’m going to make my money betting against the dollar.”
Would be interesting to see where he is salting his money away.

[Atlas Sneezed]

John Williams of Shadow Government Statistics has done a lot of work on unwinding all of the adjustments that the US government statisticians have done over the years to “improve” the CPI calculations. He finds a much higher inflation rate of 9.6% for the 12 months ending in February 2011, versus the BLS version at 2.1%. So it just may be that the relationship between gold and inflation has not really broken down.

---

Here’s your answer.

[cowtowney]

Ben Bernanke hasn’t been right on anything in the last 10 years

http://www.youtube.com/watch?v=9QpD64GUoXw

Jim Rogers on Bernanke

http://www.youtube.com/watch?v=t4cbv-KQi_s
http://www.youtube.com/watch?v=Y3oAcQ11LhE
http://www.youtube.com/watch?v=lHyQIo6jiHs

[cowtowney]

I meant 6 years, not 10.

[eyedigress]

Everybody understands. Many of us knew the collapse was in the cards when Gold was at 370. You hedged against the inflation in 2004 because the printing presses were working overtime to keep cash flowing. The housing bubble wasn’t the big reason back then. That calamity sent everything over the top.