Friday, October 10, 2008

$3,500 Gold

I already live in these hills, so please do not head for them.

Currently gold is selling in the low $900s per oz., up from $250 or so earlier in the decade. A recent tidbit of news suggest that the price of the precious metal will skyrocket. As part of the Bush administration's tragic, socialist tap dance, which the New York Times reports may include partial nationalization of banking, the Federal Reserve Bank announces yet another sharp increase in the monetary base. Howard S. Katz just e-mailed me that there has been a 68% increase in the monetary base over the past few weeks.

The inflation of this cycle may turn out to be much worse than that of the late 1970s. The inefficiencies in the economy are greater and there has been a much longer period of withdrawal of commodity production in response to low prices in the 1980s and 1990s. Howard calls this the "commodity pendulum".

Gold has already demonstrated an ability to anticipate inflation. The problem is exacerbated by the Fed's decision to encourage foreign central banks to monetize American debt. The global liquidity excesses of a few years ago are transforming into an inflation stoked by the banking system's addiction to easy money. The shortages will get worse as the old, new and future liquidity slosh through the system over the next few years, bidding up prices.

I'd say head for the hills, but I already live there and I want to keep the traffic down.

1 comment:

Anonymous said...

You know, after too much inflation, there isn't a point to count anymore. I've experienced it before earlier in my life. I see it happening here. Same delusions. People estimating the multiples of losses.

You will be able to buy US$ by weight at your local swap meet. Sooner than it seem reasonable.

Act accordingly.