Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Gold Price Rise a Consquence of Inflationary Global Expansion Money Supply

Economics / Money Supply Jan 12, 2008 - 12:57 PM GMT

By: Peter_Schiff

Economics Holding onto its "all is well" bias like a terrified cowboy on an enraged bull, Wall Street has managed to convince itself, and much of the world, that inflation is a non-issue. When confronted with facts to the contrary, their rationalizations come fast and thick. Nowhere is this spin more pronounced than in their dismissal of the surging price of gold as a relevant indicator.


Rather than favoring the logical conclusion that the rise in gold prices results from an inflationary expansion of money supplies around the world, Wall Street has credited its rise to other factors. The most common explanations include strong economic growth, rising jewelry demand, speculative buying, higher oil prices, the weak dollar, terrorism, uncertainly, middle east tensions, volatility, supply and demand, etc. Every possible explanation is offered save one, inflation.

Some explanations, such as a weak dollar, have some validity, but miss the point that the dollar is weak as a result of inflation (i.e. too much money creation by the Fed). In my commentary from September 30, 2005, I noted that rising gold prices were the inflationary equivalent of the canary in a coal mine. However, rather then fleeing for better air, Wall Street miners merely go about their business confident that the bird succumbed to natural causes. ( Click here to read that commentary .)

Given Ben Bernanke's promise yesterday to supply substantive interest rate reductions, despite his belief that the U.S. economy is not headed toward recession (a claim that even the Fed Chairman obviously does not believe), inflation has been given much more room to run. Of course, the Fed's free money fest will not be sidetracked by today's data that showed the November trade deficit surging to $63.1 Billion (some export boom), limit-up moves in commodity prices (beans in the teens!), and 2007 import prices rising by 10.9%, the largest calendar-year increase since 1987. Basically the Fed is sending the message that inflation is going to get a whole lot worse and that it couldn't care less. As the price of gold continues to climb as a result, look for more excuses to minimize the significance of the move.

Further, as the price of gold approaches the historic $1,000 level, get ready for the pundits to proclaim the market a bubble. Of course, those same experts could not see the bubble in tech stocks in the 1990s or the larger one in real estate that followed, but they have no problem spotting a non-existent bubble in gold. The bubble crowd was particularly vocal back in April of 2006 when gold first broke $600. As a reminder, I suggest reading two commentaries I wrote at the time: one titled “ Top Ten Signs of a Precious Metals Bubble, ” and a follow up “ Would you like Ketchup with that Hat ,” that I wrote in response to a commentary in which the author confidently promised to eat his hat if he was not witnessing a precious metals blow-off top in the making.

It also amazes me how every time a guest on financial television suggests gold as a sound alternative investment, the host invariably points to the 1980 price of $850 to discredit the recommendation. Such was the case again this week when CNBC's Mark Haines, who three years ago told me on the air “who cares about the price of gold,” pointed out that if an investor bought gold at $850 dollars per ounce in 1980 that he finally broke even. He compared “speculating” in gold to “investing” in General Electric, claiming that buying and holding the former for ten years assures investors a good return, but that buying and holding gold for a similar time period was much riskier and would likely produce losses. I don't know if Haines has noticed but GE shares are still trading at the same price they were eight years ago while the price of gold has tripled!

I agree with Mark Haines on one point. Watching gold go from $35 per ounce in 1970 to $850 in 1980, then buying at the absolute peak price and holding on though the entire bear market was pretty foolish. However, how many people actually did that? Certainly those who understood the problems the Fed created in the 1960s likely got in much earlier; say when prices were still well below $150 per ounce, and though they probably did not cash out at the peak, they likely sold above $450 sometime in the early 1980's. As a result, they protected their wealth during the inflation ravaged 1970s and were well positioned to acquire other financial assets at depressed prices.

Now, as then, gold's warning is crystal clear and obvious to anyone who honestly evaluates it. Those who heed it will be rewarded while those on Wall Street who rationalize it away will likely share the canary's fate.

For a more in depth analysis of the inherent dangers facing the U.S. economy and the implications for U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

By Peter Schiff
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

Peter Schiff Archive

© 2005-2019 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

6 Critical Money Making Rules