Gold Hit Another All Time High! What It Means For You

GoldBy Greg Hunter’s    

Gold hit another all time high this week.  I do not pretend to be a gold expert, but I do know a good story when I see one.  The yellow metal hitting one all time high after another is not just a fluke that makes a few gold bugs happy.    Gold is rising as the dollar is falling.  According to expert money manager Monty Guild, dollar weakness is part of the Obama administration’s plan.  On Tuesday, Guild wrote, Does the Obama Administration want the U.S. dollar to decline?  We believe it does.  On November 5th, the U.S. Federal Reserve announced that they intend to keep “interest rates exceptionally low” for an “extended period of time.”  Given that the U.S. Dollar is already under pressure due to low interest rates, the Fed’s announcement is the equivalent of saying: “go ahead and short the dollar”.  In our opinion, it is clear that this announcement ushers in a period of extreme volatility and a continued downward bias for the U.S. Dollar….”  For Monty Guild’s complete comentary (click here)

Guild went on to say, “… It does not take a rocket scientist to understand that his goals include more unionization and more exports.  And because U.S. union workers are in general much more generously compensated than non-union workers, we believe that the only way that the U.S. can achieve higher exports is to devalue the dollar.  We therefore believe that it is a goal of the Obama administration to see the dollar decline.”   

Low interest rates are not the only drag on the buck.  Money printing in the form of “quantitative easing” by the Fed is another big dollar downer.  The Fed has been printing money to buy Treasuries to suppress interest rates.  The Fed is also buying trillions of dollars in toxic assets to keep the banks from collapsing.  The Fed will keep buying this toxic stuff because hundreds of trillions of dollars of this financial poison is still floating around the globe and nobody else wants it.

We are paying people to buy houses because the residential real estate market is anemic.  What happens when the tax credits stop?  According to the FDIC, commercial real estate bankruptcies will cause even more banks to fail.  Do you think we will bailout some more banks or let them fail?   Speaking of failure, bond insurer AMBAC announced this week that it may have to file for bankruptcy protection.  Does that mean the biggest bond insurer, MBIA will also have to file?  Both companies have been in financial hot water because of bad investments in the real estate meltdown   One thing is for sure, if either of the companies go under you can bet there will be more government bailouts and none of this is dollar positive.

Take a look at state budgets around the country and you will see a sea of red ink.  According to the Center on Budget and Policy Priorities released earlier this year, 46 states could find themselves in dire budget trouble by the end of 2010.  Also, according to the latest Pew Center report released earlier this week 10 states face Fiscal Peril.”  New Jersey, Oregon, Rhode Island, Wisconsin, Arizona, Florida, Illinois, Michigan, Nevada, and California are in deep financial trouble according to the Pew report.  California alone is facing as much as a 14.4 billion dollar deficit.  Nevada is facing a 3 billion dollar shortfall on a 6 billion dollar budget!  These 10 states make up a third of the U.S. GDP.  Do you think there might be some sort of bailout for these states before the 2010 midterm elections?

Now, with the new 10.2% unemployment number (released last week) there is talk of even more stimulus to create jobs.  That is on top of the biggest stimulus package in U.S. history.   787 billion dollars was appropriated by Congress earlier this year and, with growing unemployment, chances are good we will spend even more.  (The true unemployment number is more than 22% according to Shadow Government Statistics.)

All this liquidity has been positive for the stock market.  The Dow and NASDAQ have been in a bear market rally since March because all that printed money had to go somewhere.  Also, plenty of stocks have done better because companies cut costs and laid people off.  That is not the sign of a growing economy and a new bull market in stocks.

Nothing goes straight up or straight down as they say.  You can expect a dollar rally as investor Jim Rogers predicts.  You can also expect some profit taking and corrections in the gold market.  But don’t expect this stock market rally to last.  Interest rates will start climbing when we try to sell all of this debt we are creating for bailouts and stimulus.  Bailouts and stimulus are definitely dollar negative and that seems to be the overarching trend.

Economist John Williams of Shadow Government Statistics told me gold at $1,100 an ounce is a “bargain.”  In addition, he said, “gold at $5,000 bucks will also be a bargain”.  That may seem farfetched but not if you factor inflation from 1980 until now.  The only catch is you have to compute inflation the way the government did it nearly 30 years ago.  If you did, the $850 and ounce peak in 1980, according to Williams, would equal more than $7,000 bucks today. If you compute the inflation rate the way the government does it today, you would have a gold price at near $2,400 an ounce.  Either way, there is still a long way for the price of gold to go up.

All the spending along with past and future bailouts will put more downward pressure on every dollar you save or spend.  That will mean big inflation and will make for tough choices for most of us as we get squeezed by higher prices.  This is not something that is far in the future.  Inflation is coming soon and the rising gold price is the proof!




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  1. George

    Wow. You tied this up with a neat bow. I have been considering buying Gold and Silver. I’ve looked at the way the markets are making big moves up and down. Volatility scares me. We had some of the biggest moves in market history in the last year. That is since the Great depression.

  2. Tom

    With respect to your last paragraph, big inflation is already here, Greg. It’s the big price increases that are soon to follow. Gold is basically calling the Federal Reserve and the Washington/Wall Street cabal a bunch of liars.

    • Greg

      I agree, gold is calling everybody out. The Bank of India thought Au was a steal at $1045 an ounce. What does that tell you? Thank you for your comment!

  3. Leon

    Gold has nothing to do with inflation. Gold peaked in 1981 at $850 an ounce and dropped to $250/oz 20 years later in 2001. Does that mean there was no inflation between 1981 and 2001? Of course not! Pointing to rising gold prices as a sign of inflation is misguided. There was plenty of inflation in those 20 years, yet gold prices fell.

    • Greg

      We will simply have to disagree here because relative to the dollar gold hase everytihing to do with inflation. You are correct in that there was inflation during that time but the U.S. also enjoyed a strong dollar. Now that is not the case and everything points to a long term decling in the U.S. currency. Gold is really not going up in value but the dollar is buying less. Thank you for you comment and for supporting USAWatchdog.

  4. James davis

    Peter schiff said everything will fall in relation to gold. He predicts $5000 per ounce ,hes never wrong

    • Greg

      James Davis,
      You will get no argument from me about Mr. Schiff. He’s great! I will go one better than him on the price of gold. It will hit at least $7,300 per troy ounce before it is over The reason why I say this is if you calculate inflation the way it was done in 1980– the old $850 per oz high would equal more than $7,000 per ounce today. Gold will at least eclipse its former all-time high in inflation adjusted dollars. The problems we have today dwarf what was going on then. Silver will go up in price (on a percentage basis) much higher than gold. Silvers all-time high was $50 bucks an ounce and we are barley half way there. Thank you for your comment.

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