|Gold Prices Since '08--An 18-Month Stagnation Mirrors the 1983-2001 Era|
|Money Supply M1: Obama Meant Change|
|Monetary Base--Can Be Expanded Tenfold from Here|
I have been subscribing to Przemyslaw Radomski's Sunshine Profits newsletter for four or five months. One of his Kitco articles is here. He is a capable technical analyst who is predicting a gold-price turnaround. His short-term predictions may be correct, although there’s reason not to be surprised if there are a few years of a hiatus in gold’s movement upward (the current hiatus has lasted 1.5 years, as the top chart indicates). Even if Radomski is right and gold rallies this year, there could be a several year stale period before another epic-scale rally occurs. That's not to say to sell gold because the Federal Reserve Bank and the federal government have led America to an unstable, casino economy. Because the US monetary system is unstable, gold is a hedge.
The 1980s and 1990s economy was something like the 1920s, with monetary expansion funneled into stock-and-real-estate bubbles rather than price inflation. Because the prior, 30-year monetary expansion mutes the effects of the three QEs, and the Fed added the QEs to the 30-year expansion with no reallocation or liquidation of the (distorted) real economy, in the coming years we can expect larger bubbles or larger inflation than we’ve seen in the past. Either may augur well for gold once a shakeout in the mining sector occurs.
Investors are no better off than they were in 2003 and 2007, and the stock market is at similar levels. Interest rates are near zero. Although the Fed has caused valuations of future earnings to increase to nearly infinite levels, causing the stock market to escalate, stock market prices are constrained by the availability of money to invest. Will banks continue to pump up the stock market in a kind of Ponzi scheme whereby the Fed prints money, uses it to buy treasury bonds, and the banks then use the printed money to pump up the stock market? Alternatively, can foreign investors carry the US stock market to ever higher levels? It is not at all clear that the current stock market valuation is more than one more peak in a secular bear market that began in 2000.
Another problem with the stock market is that during periods of uncertainty, there can be sharp falls in valuations. If, for example, there is a currency collapse, the stock market might fall because of the risk. Hence, we see the wisdom in owning gold.