Current Market Rates Per Ounce
September 08, 2010 4:19:24 PM PST
| USD $ | CAD $ | |
| Gold (AU): | 1,256.00 | 1,302.47 |
| Silver (AG): | 19.93 | 20.67 |
| Platinum (PT): | 1,552.50 | 1,609.94 |
| Palladium (PD): | 522.00 | 541.31 |
| USD-CAD Exchange Rate: | 1.037 | |
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Keep Your Eye on the Prize
By Peter Degraaf
November 21, 2008
In this fast-moving age it is so easy to take your eye off the prize. Short-term trends can easily throw one off track. For every analyst who will tell you a stock or commodity is going up, there is another one who will tell you it is going down in price.
Who to believe?
When in doubt, consult the longer term charts! On my website I provide a collection of about twenty long-term charts that help me (and will help you) to keep your eye on the prize! These charts are updated at regular intervals and there is no charge for looking.
One powerful force that is currently causing many people to take their eye off the prize is the outcry of deflation. While there can be no doubt that there is asset deflation going on (houses, used cars, stocks and many commodities) are tumbling downhill as people panic. There is however no monetary deflation going on. On the contrary, there is currently unprecedented monetary INFLATION taking place and never before in history have so many countries inflated the various money supplies with this much additional money in such a short period of time.
The Federal Reserve has just updated its latest Adjusted Monetary Base chart (courtesy St. Louis Fed). Since early September the increase is 650 billion. On an annualized basis this is an increase of 450%. The reason this monetary inflation has (not yet) shown up in consumer price is for two reasons. First, too many people are mesmerized by the assets deflation that is going on around them and, second, it takes time for money to work its way through the system. If history is a guide (and it is) then you can bet the farm that monetary inflation ALWAYS results in price inflation down the road.
Here is a partial listing of countries that have been down this road. (Thanks to Jim Sinclair for this list.)
- Angola 1991-1999
- Argentina 1981 1992
- Belarus 1993 2008
- Bolivia 1984 1986
- Bosnia Herzegovina 1992 1993
- Brazil 1986 -1994
- Chile 1971 1981
- China 1948 1955
- Georgia 1993 -1995
- Germany 1919 -1923
- Greece 1943 1953 At the high point prices doubled every 28 hours. Greek inflation reached a rate of 8.5 billion percent per month.
- Hungry 1944 1946
- Israel 1971 1985 (price controls instituted)
- Japan 1934 1951
- Nicaragua 1987 1990
- Peru 1987 1991
- Poland 1990 1994
- Romania 1998 2006
- Turkey 1990 2001
- Ukraine 1992 1995
- USA 1773 not worth a Continental
- Yugoslavia 1989 1994
- Zaire 1989 present (now the Congo)
- Zimbabwe 2000 to present. November of 2008 inflation rate of 516 quintillion percent
The above list does not include a number of countries that saw hyper-inflation as a result of World War II.
The photograph above shows a German woman using worthless paper money to heat her home in 1923.
Why does history repeat? The answer is human nature. The officials in charge of the money supply, whether is was the Czar, the King, Caesar or the head of a central bank, simply cannot resist the easy way out of a monetary crisis by adding to the money supply.
Here is an example of the consequence of monetary inflation. Imagine yourself in an auction hall. Just before the auction begins, a rich man walks in with a briefcase filled with hundred dollar bills. He hands a few to each of the patrons until his briefcase is empty. What do you think is going to happen to the prices at the auction? This is exactly what happens in the larger economy.
How do you protect yourself from the ravages of monetary inflation? You buy the things that government cannot produce such as: income property in an area where prices are stable or have just come down in price. Stock in companies that produce goods that we cannot live without, including oil and gas producers, since we are a long way from converting to alternate sources of energy. Finally, and this is the simplest protection against monetary inflation, buy some gold and silver. For some 5,000 years gold has provided a safe haven against the ravages of inflation.
While there are periods when it behooves the investor to cash in his gold during periods of monetary inflation (like now), gold and silver are a must in any portfolio.
Featured is a 100 year chart that shows you when to be in gold and when to be out of gold. Clearly now is a time to be in gold and not to worry about the daily fluctuations! This is the most important chart any investor needs to look at for the long-term direction of both the DOW and gold.
Those of you with a shorter time frame might like to keep an eye on real interest rates. Real rates are T-bills less the cost of living, or CPI. While the official CPI is usually less than totally reliable (due to massaging of numbers) we will use the chart provided by the St. Louis Federal Reserve Bank for this article. For those who are skeptical, we would recommend using the information provided by John Williams at www.shadowstats.com.
Chart courtesy St. Louis Fed.
As seen by this chart, the official real rate of interest is currently -3.5%. Gold always flourishes while rates are negative. While some will argue that inflation expectations will be lowered due to the lower oil and wholesale prices of agricultural commodities, we must remember that the effect of negative real interest rates take a long time to change peoples investing behavior. Real rates would have to be positive for a year or more before the effects of negative rates would be erased.
Bullish Gold Fundamentals
The World Gold council has just issued a report with some very bullish nuggets.
- Dollar demand reached an all-time quarterly record of US $332 Bn in Q3/08.
- This figure was 45% higher than the previous record set in Q2/08.
- ETFs are sitting on 382 tonnes -- double last years tonnage.
- Retail investment demand rose 121% to 232 tonnes in Q3/08.
- Demand in Greater China rose 18% to 109 tonnes, with the majority of this increase attributable to a strong rise in demand in mainland China (+16 tonnes).
- Jewellery demand in the Middle East rose 47% to US $2.8B in Q3/08.
- Gold supply was down 9.7% from year ago levels.
My sources in Switzerland reported this morning that two Swiss banks (UBS and Credit Suisse) have written off US$60 billion dollars. You know it's bad when even the conservative Swiss bankers are having problems.
There are also rumours, as yet unconfirmed, that the Swiss no longer keep financial information secret from the IRS. If this turns out to be factual it will cause money to move from Swiss bank accounts into gold.
Chart courtesy www.stockcharts.com
I close with the daily gold chart. Price has put in an ABC bottom. The RSI and MACD are positive. A close above the blue arrow sets up a target at the green arrow. My Gold Direction Indicator is at +85% this morning. While this article is focused on gold, the fundamentals for silver are even more bullish than for gold. The ratio between gold and silver has widened to 83:1 while the historical ratio is 15:1 and my research leads me to conclude that the ratio will narrow to 10:1 over time.
DISCLAIMER
Please do your own due diligence. I am NOT responsible for your trading decisions.
Happy trading!
PETER DEGRAAF is an online stock trader with over 50 years of investing experience. He issues a weekend report for his many subscribers. A sample copy of a previous report is available upon request. He can be reached at itiswell@cogeco.ca. At his website (pdegraaf.com) you will find a number of long-term charts that are updated regularly. Fourty-seven pages of worthwhile quotes are proving to be a very popular attraction as well. Subscription information is also available at the website.
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