Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Up 8 Out of First 9 months - 13th Dec 24
What Does a Strong Sept Mean for the Stock Market? - 13th Dec 24
Is Trump the Most Pro-Stock Market President Ever? - 13th Dec 24
Interest Rates, Unemployment and the SPX - 13th Dec 24
Fed Balance Sheet Continues To Decline - 13th Dec 24
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Precious Metals In A Jobless Economic Recovery

Commodities / Gold and Silver 2010 Jul 15, 2010 - 02:38 AM GMT

By: Dr_Jeff_Lewis

Commodities

Best Financial Markets Analysis ArticleAlready months into a “recovery,” we're hearing about how this will turn out to be a jobless recovery –  that is, the economy will grow without adding any actual jobs or reducing at all the number of unemployed persons.  While we would all like to embrace that idea, the theory that an economy can grow without anyone being employed simply isn't practical.  However, precious metals investors should like it for one simple reason: higher prices.


The Mechanics of Jobless Recoveries

The government collects data on the economy, and then it puts it all together to create what we know as the GDP, or gross domestic product.  Included in this figure is the worth of all goods, services, investment, government spending and net exports.  Under a Keynesian model, this would be the best way to see growth in the economy. 

First, you find the growth in the GDP and then subtract the change in prices in the same time.  Thus, if the GDP were to grow by 10%, but prices were to rise just 2%, then the GDP would be said to have grown 8% adjusted for inflation.  We know this is entirely false.

How it Really Works

The GDP is a very basic and far too simplified measure of economic achievement.  Since the GDP is tied to four things – consumption, investment, government spending, and net exports – the figures can be easily manipulated in two ways. 

First, during a recession, the government can spend more to influence the GDP.  If government spending were to equal 50% of the GDP (it doesn't...yet), then a 10% increase in government spending as a “stimulus” could add a total of 5% to the GDP in one year.  For all intents and purposes, the economy would have grown, as calculated by GDP, at a rate of 5%.  Of course, that money was likely spent on ditch digging, bean counting, wars, or other investments that do not bring about productive employment. 

The second way the GDP can be manipulated is by increasing the money supply.  By increasing the money supply, more money can chase the same amount of goods, and the GDP, as measured in dollars, will increase.  You see, since the GDP is tied to the change in prices – and not the change in the money supply – this is one of the most convenient ways for the government to claim economic recovery.  Just print up the money, put it in the economy, and hope that prices do not rise to an equal degree as monetary inflation.  Of course, prices always catch up eventually, but not immediately.

“Jobless Recovery” is Great for Metals Investors

Since prices tend to be delayed when catching up with the money supply, a few parts of the economy rise before the others.  Money added into the system flows first to the freest portions of the economy, where the price of goods is centralized and there is enough liquidity and volume.  This usually happens at the base, where commodity goods rise first, only to be followed by their value-added counterparts. 

Oil, for example, may rise well before the price of transporting goods, even though they are highly related.  Oil is easily bought and sold on the exchange, while other inputs like ships, docking infrastructure, and labor are not as easily bought and sold, and it takes time for inflation to reach those goods and services.  For example, the price of labor would adjust only when there is a shortage of labor (there isn't), and only after enough people have been hired, fired, or replaced would today's new wages come into play.  Oil can be bought, sold, and swapped within seconds.  Labor is very much illiquid.

Precious Metals

In a jobless recovery, precious metals will be the first of any real prices to rise.  Since the GDP is inflation adjusted by the change in price of goods at the store, not on the commodities exchange, inflation is misinterpreted early on until the velocity kicks in and it catches up. 

For gold and silver, this means that higher prices will hit the metals market long before they hit your pocket book, giving you both long term wealth growth and short term appreciation in your purchasing power. 

However, be careful.  Inflation is a matter of not “if,” but when it will come.  The best way to prepare, of course, is to buy the basic commodities, and for monetary inflation, nothing is better than simple gold and silver coins.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2010 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in