Tuesday, April 18, 2006


Inflation Is Back!

Bloomberg reports on another amazing trading day. "Gold rose above $620 an ounce, the highest since 1980, as record oil prices and a drop in the dollar prompted some investors to buy bullion seeking a hedge against inflation. Gold has jumped 20 percent this year as oil climbed to a record $71.60 a barrel today. Gold prices are up 45 percent in the past year. Gold futures for delivery in June rose $4.50, or 0.7 percent, to $623.30."

"Silver for May delivery rose 42 cents, or 3.1 percent, to $13.785 an ounce on the Comex, after reaching $13.82. Prices are up 55 percent in this year.

"'Institutions are looking to hedge themselves against weakness in the dollar and inflationary threat,' said Brian Hicks. 'Gold can go much higher. It hasn't eclipsed its previous highs.''

"Mounting tensions over Iran's nuclear program helped sustain gold's 3.1 percent gain yesterday, the most since Sept. 11, and helped boost the price of oil. Iran is the world's fourth-largest producer. The prospect of a weaker dollar has also helped boost gold, analysts said. The U.S. currency neared its lowest against the euro this year after a report showed U.S. housing starts slowed last month, suggesting a weakening economy."

"'The strength in gold is revealing the general weakness in the dollar,' said Peter Schiff. Gold moved in tandem with the euro from 2002 to 2004. The relationship changed last year when gold gained 18 percent as the dollar climbed 14 percent against the euro."

"'A lot of demand for commodities is purely inflationary,' Schiff said. 'Money is losing value. It's not just the dollar. It's the euro. It's the yen. All these currencies are being debased.'"

"The dollar extended losses against major rivals Tuesday after minutes from the latest Federal Reserve monetary-policy meeting suggested the policy-making board could be at the end of its cycle of tightening interest rates."

"In late New York trading, the dollar was changing hands at 117.09 yen, down 0.6% from late Monday. The euro was up 0.8% at $1.2351. The British pound rose 0.8% to $1.7830, while the dollar was last down 0.9% at 1.2686 Swiss francs."

This is starting to get interesting. I don't put as much weight with Yellen as Wall Street does. What they are saying about stopping the rate hikes, IMO, is that we are near to tipping into recession. But with the huge trade and budget deficits, that policy risks a US$ collapse.

Well, the Fed wanted inflation to stave off deflation (see fall 2003). Now we'll find out how bad they really want it.

Congrats to the metal longs out there! You had to put up with a lot of name calling, but the institutions are buying now.
I think the take home lesson is this quote: "All these currencies are being debased." Its a race to the bottom.
the institutions are buying now

Yes, definitely phase II. Any guesses as to how long before the public catches on? Gotta keep accumulating... prices now are still cheap!
For those who think gold is still flying under the radar:

It's a gold rush as savers sock the bars away


From Wednesday's Globe and Mail

Yes, it's still under the radar. It doesn't take a whole lot of people to kick up activity in the PMs.

Phase III will be evident when radio ads, web ads & spam -- currently all mortgage-related -- are dominated by precious metal pitches.
I love how kudlow was explaing away the rise in commodities today.
I am definitely interested in the same thing you are. How long Phase 2 play out.
If we consider phase 1 being 5 years long (roughly 2001-2005) I would imagine phase 2 will be as long and phase 3 almost that long.
But I keep my eyes open.
I think Phase 3 won't be very short because public is a slow learner. Look at RE. It took the public to get excited for the last 3 years or so.
I also believe that longevity of phase 2 depends on the stock market performance and general economy. If indexes will be hitting new highs ( o-yea it is possible) attention of the institutions will be directed toward them and PM's may slow or even correct (like you and I agreed on once before).
You probably wondering why I think
Dow may hit new high and the answer is very simple: FED inflating. I think stock market will be the next beneficiary of new wave of freshly created money. But this is the same reason why gold will be going higher. I am influenced in this thinking by Jim Puplava (Financial Sense) and "The Next Great Bubble Boom" by Dent (really worth to read).
In any case I would be buying Pm's until I see Forbes cover story about gold. Then I know it is time to slowly making my mind of liquidating PM's positions.
What is your best shot on this topic TJ?
Gold almost $630 and silver approaching $14.50... amazing.

Yes, Mike, despite the recent action, gold just doesn't have the same warm fuzzies associated with it that real estate has had, especially for this last generation. Any societal biases are still firmly against gold, and the masses will continually be warned against "getting in on the top" of a "speculative investment bubble".

Yeah, I too am an FSO junkie, but although Dent's work is interesting I'm almost certain that the RE bubble bursting will eviscerate "the next great bubble boom". Either way, good for PMs.
I am still not convinced about Dent's take, but I want to keep his prediction in mind as one possibility. And make more sense to me now when Jim Puplava is seeing inflation materializing in stock market and specially in technology stocks.
But give me your take on gold bull timeline, TJ.

Gotta think about that one!


Sounds like another weekend topic:

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