Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Why PEAK INFLATION is a RED HERRING! Prepare for a Decade Long Cost of Living Crisis - 9th Aug 22
FREETRADE Want to LEND My Shares to Short Sellers! - 8th Aug 22
Stock Market Unclosed Gap - 8th Aug 22
The End Game for Silver Shenanigans... - 8th Aug 22er
WARNING Corsair MP600 NVME2 M2 SSD Are Prone to Failure Can Prevent Systems From Booting - 8th Aug 22
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
WHY PEAK INFLATION RED HERRING - 5th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
SILVER’S BAD BREAK - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22
What it's like at a Stocks Bear Market Bottom - 29th July 22
How to lock in a Guaranteed 9.6% return from Uncle Sam With I Bonds - 29th July 22
All You Need to Know About the Increase in Building Insurance Premiums for Flats - 29th July 22
The Challenges on the Horizon for UK Landlords - 29th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Celebrating the Creation of a Government Agency Dedicated to Making Gold More Valuable

Commodities / Gold and Silver 2011 Jan 03, 2011 - 06:19 AM GMT

By: Ned_W_Schmidt

Commodities

Best Financial Markets Analysis ArticleWe seem to have missed the celebration. Forget Christmas. Forget New Year's Eve. 23 December was the big day, and we should have all been partying. What should we have been celebrating on that day? On 23 December 1913 the Federal Reserve Act was passed by the U.S. Senate, creating the most monumental mistake of governance in 97 years.


One would think that if something has not worked effectively in 97 years that it would be thrown out. If your car did not work for 97 days, what would you do with it? Only governments would persist in maintaining an ineffective function in light of unending evidence of failure. We need to mark our calendars for next 23 December to celebrate the creation of the only government agency dedicated to making Gold more valuable. Federal Reserve has accomplished little else.

Original intent of creating a U.S. central bank was to have a lender of last resort in order to help avoid the financial panics that had ravaged the U.S. economy on a regular basis. Obviously, that was not to happen. Certainly, the two financial bubbles of the past decade demonstrate that the Federal Reserve, as currently structured, has no intention of reducing financial risk. Current policy of monetizing outright the Obama Deficit would seem to only further increase financial risk.

Per Wikipedia.org, not all in the U.S. Senate were enthusiastic on idea of creating the Federal Reserve. Only 43 of 95 Senators voted to pass the act. 25 voted against it and 27 did not vote. By a minority act of the Senate, the U.S. currency was to begin a near century of debasement. That is reason enough to view $Gold as having a long-term role in investment portfolios.

We do note, however, that the U.S. Senate has recently acted more responsibly on the matter of the Federal Reserve. It recently rejected for the second time the nomination of Peter Diamond, a winner of the phony Nobel prize in economics, to the board of the Federal Reserve. Perhaps some hope remains. However, until hope is converted into responsible monetary policy, we must retain our long-term interest in Gold.

US Monetary Inflation versus Gold

Inflationary bias of U.S. Federal Reserve policy is now beginning again to appear in the chart above. That red line is the inflationary component of U.S. monetary growth. It has again turned positive, and is a reason for retaining Gold in one's portfolio. That inflationary bias will continue as long as the failed policies of intellectually inbred Keynesian economists are allowed to run amok at the Federal Reserve.

That all said, we must also live within a series of short-term time frames. Long-term is made up by a succession of short-term periods. In those short-term periods any asset, even one such as Gold, can become the subject of excessive speculation. That may be due to the irresponsible monetary policy of the Federal Reserve creating a bubble in precious metals.

2010 in China was the year of the tiger. In the West, 2010 was the year of the instant Gold guru. Two years ago most journalists and media heads did not know a Gold bar from a cucumber. Now, every article or commentator expounds on the obvious wisdom of having Gold and Silver in a portfolio. Ten years ago we jokingly talked of selling Gold when it became the central discussion at cocktail parties as was done with internet and technology stocks. Does anyone not talk about Gold and Silver?

Gold Monthly Average Price

Speculative bubbles, perhaps of a short-term nature, are clearly evident in Gold and Silver. However, despite the absolute price moves, the momentum of $Gold has weakened materially. Second derivative is negative. These conditions can be observed in the above chart.

Changes in momentum and relative strength proceed changes in absolute price. Again, the derivatives are dominant. As can be observed in the chart, the deeply negative momentum of the 1999+ era was converted into positive momentum and a bottoming in prices.

More recently, the upside momentum has reached extremes on three occasions. Each previous move to extremely positive momentum has been corrected by a return to near or below the zero return line. Given the current extremely excessive level of speculation in Gold and especially in Silver, little reason exists as to why it should not do so again. Longer term investors should continue to retain their Gold holdings as insurance against Keynesian economists. New cash should not be committed to either Gold or Silver until that zero return line is again achieved.

With 2011 now here, we have one final question today with which to close. Is this the second or third year in which hyperinflation is imminent?

By Ned W Schmidt CFA, CEBS

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS as part of a joyous mission to save investors from the financial abyss of paper assets. He is publisher of The Value View Gold Report, monthly, and Trading Thoughts, about weekly. To receive these reports, go to www.valueviewgoldreport.com

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

dincer
04 Jan 11, 03:07
FED makes the gold undervalued

FED does not make gold more valuable, FED constantly makes gold undervalued. We, as the inhabitants of the world, have paper financial assets which are worth $200 trillion. Most of these assets are toxic, at best junk. This inverted pyramid will certainly collapse, cash demand will increase because everyone will try to sell junk assets. I think the critical point (like Lehman in autumn 2008) for the next few years will be the tremendous shortage of gold and silver. Especially the gold lease rates will skyrocket and everyone will say the same thing: the emperor has no clothes!


jim
04 Jan 11, 23:40
Gold

Amen brother. Exploding human population, exploding printing of money, decreasing amount of precious metals, i.e. real money. Simply supply/demand curve. More competing for less makes that asset more valuable. But Ben Bernanke can not figure this out. You really cannot make this up.


Post Comment

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