Gold Hits 4-Month High On Predictions of Fed Stimulus

August 23, 2012

The price of gold has surged to a 4-month high in the wake of the release of Federal Reserve Open Market Committee minutes indicating that the Fed is nearly ready to turn on more stimulative policies in an attempt to boost economic activity in the US:

The policymakers at the Fed are clearly frustrated at the slow pace of economic activity and chronic high unemployment in the US and are also no doubt under intense political pressure from the Obama administration to act soon to boost Obama’s re-election chances in less than 3 months.

What all this really adds up to, however, is a further undermining of the US dollar. These types of stimulus packages have been largely ineffective at boosting economic activity and lowering unemployment to acceptable levels. But one thing is undeniable: they increase the supply of US dollars in a world that is already awash in dollars. This has the impact of reducing the value of the dollar.

That is why investors are moving back into gold in a big way. Gold has historically had a negative correlation with the dollar, so policies that undermine the value of the dollar tend to boost the price of gold.

Because at this point we only have an indication that the Fed has intentions of instituting such stimulative policies, investors have a window of opportunity in which to act. Buy gold investments now, before the dollar declines in earnest and gold prices are much higher.



Wall Street Journal Market Watch: Stagflation is back, ready or not

August 16, 2012

One topic that we cover on Mind Your Money frequently is stagflation, simply because stagflation is the perfect storm for investors.

It is terribly damaging to stocks and equally toxic for bonds. Gold investments, on the other hand, have historically performed very well during periods of stagflation.

That’s why when a mainstream financial news outlet like The Wall Street Journal covers stagflation, we draw attention to it. When someone tells you that stagflation is coming, what they’re really telling you is to prepare for a bear market in stocks and bonds and a bull market in gold investments…

Stagflation is back, ready or not

Commentary: U.S. revisiting economic woes of 1970s

PORT WASHINGTON, N.Y. (MarketWatch) — The dreaded combination of stagnation and inflation has returned, bringing with it new challenges for policy makers, investors, business people and consumers.

As far as policy goes, it is tough enough to reduce unemployment. It is also no picnic to keep inflation at bay.

But it is a real challenge to deal with both at the same time, which is what policy makers must do when confronted with stagflation. This is because fighting one problem risks exacerbating the other.

While neither unemployment nor inflation is uncommon, every so often, both rise together to alarmingly high levels. Take the period from 1973 through 1975, for example.

The economy entered into a recession in November 1973 and did not stop falling until March 1975 — a period of 16 months, which at that time was the longest downturn since the 1930s.

Meanwhile, inflation, which had risen from 3.6% at the beginning of 1973, to 8.3% when the recession began, continued to rise throughout 1974, peaking at an annual rate of 12.3% in December of that year.

This double-digit inflation was caused by rapid money growth in the wake of the quadrupling of oil prices in late 1973, which led to a sharp rise in inflation expectations, especially through cost-of-living-clauses in private and public contracts.

However, the combination of sharply rising prices and interest rates depleted buying power, causing business to cut back. Layoffs rose, sending the unemployment rate from 4.9% in the fourth quarter of 1973 to a high of 8.7% by the second quarter of 1975.

President Ford’s WIN (Whip Inflation Now) policy was futile; so were President Carter’s wage-price guidelines.

It took Paul Volcker to vanquish inflation. The Fed chief’s policy of tight money and record-high interest rates produced a double-dip recession from 1980-82 — but sent inflation tumbling from an annual rate of 15% in early 1980 to only 2.5% by the middle of 1983.

On the surface, today’s economy looks like just a case of stagnation. After all, it’s the unemployment rate that’s high at 8.3%; the reported rate of inflation has been below 2% for the past few months.

But here is the rub: While some prices, such as fuel, are up noticeably, today’s inflation seems to be very low, probably a result of giving less for the same price.

For example, in the supermarket, you now find 10 mini-bagels for the price of 12, and 21 garbage bags for the price of 25.

Summer camps are now giving your children seven weeks away for the price of eight. And how many of you have noticed new menus at your favorite restaurant with new (higher) prices?

Now the government’s surveyors are supposed to pick this up, but they are usually late to the party until it’s called to their attention, as we are doing here.

More (visible) inflation lies ahead. The drought has already sent grain prices soaring. Cattle will soon follow. Besides food, prices are already rising across the board for such staples as cars, clothing, and shelter — and, of course, medical care.

If the Fed eases further, reported inflation is bound to rise. If fiscal policy tightens, the economy will probably slide back into recession.

Since both seem likely to happen, you might as well add stagflation to your list of concerns.

Who Can You Trust?

August 16, 2012

One of the most frustrating and worrisome aspects of investing is the fact that, on occasion, investors are victimized and lose their money to crooks and swindlers.

And those crooks and swindlers are not always small-time operations.

Take MF Global for example. MF Global was one of the fastest rising trading firms in the financial world, headed by the former governor of New Jersey, Jon Corzine.

Thousands of clients lost billions of dollars when MF Global used their money in unauthorized transactions that subsequently went bad. In most circles, that’s called “stealing.” When someone gets caught stealing, they are supposed to go to jail.

But that’s not going to happen in the case of MF Global. The firm stole from its clients then collapsed and now no longer exists. The ace investigators at the US government have just concluded their work and lo and behold, NO ONE will be charged with a crime in this disgraceful affair.

This is what is known as adding insult to injury.

Investors need to be careful about putting to much trust in Wall Street. And they need to be careful about putting too much faith in government regulators to protect their hard-earned wealth.

All too often, promises from Wall Street and Washington are hollow.

Investors need to put their faith in an asset that is not dependent upon anyone’s promises: GOLD. Gold isn’t anyone’s liability and it doesn’t depend on anyone’s backing or guarantees. That’s why it should form the financial shield for the properly diversified investment portfolio.–finance.html?_esi=1

What Would a Euro Collapse Mean for Investors?

August 13, 2012

Germany‘s largest news magazine has just published an important story on what is seen as the impending collapse of the euro.

Investors need to examine what this means for their portfolio.

First of all, you should not assume that because the euro is a European currency that the side effects of its collapse would be limited to Europe. In today’s globalized, interconnected world, finance moves literally at the speed of light. What happens 10,000 miles away may as well be next door.

As we have seen in the periodic flare ups of the ongoing economic and financial crisis in Europe, the initial beneficiary of weakness in the euro has been the US dollar. Should the euro collapse, the initial reaction would probably be similar. But this would be short-lived for two reasons:

1. Historically, currency crises benefit gold, which is a counterweight to the US dollar.

2. Those who flee the euro for the dollar will soon realize that the systemic and fundamental debt problems that have led to the euro’s demise also exist in the US–only worse. As a result, investors need to find alternative safe havens.

There is no silver lining for this cloud in terms of world stock markets. A collapse of the euro would send shockwaves across the oceans.

This is all the more reason why investors should seek to accumulate gold investments now, before a euro collapse.

Cost-Push Inflation for Food Could Push Gold Sharply Higher

August 12, 2012

Over the past few weeks, Mind Your Money blog has alluded to the possibility of inflation gauges rising due to rising food prices worldwide.

Seeking Alpha has an important article that ties that possibility to gold prices, citing evidence that rising food prices touched off by drought conditions could send gold to $1900 an ounce by the end of the year. If so, this would mark the 12th year in a row of rising gold prices…

Food Inflation From Worldwide Drought Could Push Gold Above $1900 An Ounce By Year End


US Regulators Tell Banks to Prepare for Collapse

August 12, 2012

Here’s a news story that does anything BUT create confidence in the investment world.

US regulators have told America’s largest banks to prepare for a financial crisis to prevent a collapse because they won’t be able to count on government help next time there is a serious economic and financial crisis.

This is certainly no surprise given the US government’s fiscal condition, reduced credit rating and monetary policy at the apex of what it can do to attempt to blow wind into the economy’s sails as it is. But it is also a concern because, as JP Morgan Chase has shown recently, counting on these financial institutions to be responsible is a questionable policy.

Investors need to take their own action to prepare for a financial crisis. That means NOT depending on ANYONE’S promise to repay. Gold is an asset in its own right, completely independent of anyone’s promises. That’s why it has stood solid as a store of value and trusted medium of exchange for 5000 years…

U.S. banks told to make plans for preventing collapse

U.S. regulators directed five of the country’s biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help…


Carson City 1873 Seated Liberty Dime Auctions for $1.6 million at ANA Show in Philadelphia

August 12, 2012

The market for truly rare coins continues to exhibit strength. Another ultra-rarity fetched an astonishing number at the Stack’s auction at the American Numismatic Association show in Philadelphia when a 1873-CC Seated Liberty Dime fetched $1.6 million, generating international news publicity for the rare coin market…