Gold Demand Jumps 36% as Investors Step Up Purchases of ETFs, Council Says
Bloomberg – Private investors and central banks are stepping up purchases of gold-backed ETFs. Concerns about sovereign debt in Europe and the continuing viability of the dollar have sent gold prices up 30% year-over-year. In June, Gold shattered all previous nominal records against the euro, pound sterling, and Swiss franc. With the Federal Reserve reiterating its pledge to keep interest rates near zero and the EU setting up a $1 trillion bailout fund for its weaker member-states, individuals, institutions, and creditor governments have found gold to be the last reliable safe haven. As investors pour into ETFs for liquidity and accounting purposes, gold moves off the market and into vaults, allowing holders of physical gold the benefit of rising prices without counterparty risk.
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Sinai Says Fed’s Statement Means “Gotta Buy Gold”
Bloomberg – The FOMC policy statement on Sept. 21 said that inflation too low for the Fed to achieve its dual mandates of price stability and maximum employment. This language was much more aggressive that previous statements, and lays the groundwork for a second round of ‘quantitative easing,’ i.e. money printing. Respected private economist Allen Sinai explains that the statement was “code for: ‘we don’t want to go the way of Japan so we’re going to print money.'” How does one trade this information? “You gotta buy gold,” says Dr. Sinai.
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Gold Bull Market Has a Long Way to Go, Says Jim Rogers
Kitco News – Famed commodities investor Jim Rogers describes the recent gold rally as a direct response to aggressive money printing by the governments of the United States and Japan. Both manage what have traditionally been considered “safe haven” currencies, so their devaluation efforts have destabilized the currency markets. Rogers says a gold bubble will form one day, but not anytime soon — because gold is still an unusual investment for financial professionals, and very rare among retail investors. As recently as this year, he asked the money-manager audience at one of his lectures how many had ever owned gold and only about one in four raised their hands. He recommends everyone own some gold in their portfolio, but sees silver as having even greater potential for gain.
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Prices Excluding Food, Energy in US Rise More Than Forecast
Bloomberg – Trouble in the eurozone may be helping to bolster the US dollar, and hold down the CPI, as investors seek perceived safety. Meanwhile, retailers are aggressively cutting prices in an attempt to improve weak sales figures. Nonetheless, the “core” Consumer Price Index (CPI) increased slightly in June, surprising many analysts who were bracing for deflation. More Americans are losing their jobs, and yet the cost of living continues to climb.
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Silver – The Next Belle of the Ball?
Barron’s – Gold is trading at 66 times silver, compared to a historic average of 16 times. Many analysts, notably Jim Rogers, expect this gap to narrow. While Jim Turk points out that silver is more volatile than gold, he believes the gold/silver ratio will return to 20:1. With gold at its current prices, this would mean a silver price of about $60/oz – a gain of some 240% from current levels. Reasons to be bullish on silver include safe haven demand like gold, but also strong industrial demand for use in solar panels, water purification plants, and as an antibacterial agent.
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The Death of Paper Money
Daily Telegraph – Celebrated conservative columnist Ambrose Evans-Pritchard discusses the renewed interest in studying past episodes of hyperinflation. Each one starts with a passive increase in the money supply [the Fed more than doubled the US dollar supply after the 2007 credit crunch], which may not affect general price levels for a long time. But, once it does, the currency system can collapse in a matter of weeks. Germany, Austria, and Hungary provide examples of this after World War I. Each saw civil society disintegrate as starving urbanites fled into the countryside to pillage farms. “The winners,” Pritchard recounts, “were those who – by luck or design – had borrowed heavily from banks to buy hard assets.”
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