This Month in Gold – August 2010

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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