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

http://seekingalpha.com/article/801241-food-inflation-from-worldwide-drought-could-push-gold-above-1900-an-ounce-by-year-end

 


Europe, Drought, Poverty, Recession All Weigh on Wall Street

July 23, 2012

The US stock market fell sharply today, mostly because of renewed worries coming out of Europe.

It now looks as if the $100 billion bank bailout package the European Union granted to Spain isn’t going to be enough and the fear is that a much larger, broader bailout of the country’s financial system will be required. Spain is not Greece. Spain has a much larger economy and a much larger banking system. Scraping together the money to fix Spain’s debt woes is a lot easier said than done. In fact, no one is certain that a bailout can or should be accomplished at all.

http://www.cnbc.com/id/48279904

Speaking of Greece, the old problem that was supposed to have been fixed is still very much of a problem. The bailout program that the European Union put together for Greece worked so well that now their Prime Minister is saying their economy is in a “Great Depression:”

http://www.telegraph.co.uk/finance/financialcrisis/9418656/Debt-crisis-Greek-economy-is-in-a-Great-Depression-says-Samaras.html

For now, the Dollar has been the beneficiary of the European trouble, but there are other indications that the dollar’s strength can’t last:

For example, the drought that we have reported on here twice before is getting worse, which means higher commodity prices ahead, pushing inflation fears higher, even as the economy stagnates:

http://www.nytimes.com/2012/07/20/science/earth/severe-drought-expected-to-worsen-across-the-nation.html?_r=3

And despite all the government spending over the past few years, all designed to stimulate the economy, the poverty rate in America is soaring, reaching levels not seen since LBJ originally launched the so-called “war on poverty:”

http://news.yahoo.com/us-poverty-track-rise-highest-since-1960s-112946547–finance.html?_esi=1

Meanwhile, disappointing earnings are pointing to a fast-aproaching recession in the US to go along with those higher food prices. STAGFLATION anyone?

http://www.cnbc.com/id/48259674

Experts expect that recession any time now. Nouriel Roubini says the US economy is going from bad to worse:

http://www.cnbc.com/id/48281577

Anyone who expects good things from the US dollar and stock market in these conditions is whistling past the graveyard. Diversification is the best defense and hard assets provide the best form of diversification.

 


Stagflation On Its Way

July 17, 2012

Two reports in the news today suggest that stagflation is on its way.

Stagflation is the economic affliction in which a stagnant economy (often characterized by high unemployment) coincides with rising prices (caused by an increase in inflation).

Stagflation was first identified back in the 1970s and is a terrible condition for stock investors and an ideal circumstance for gold investors. During the worst bout of stagflation in 1974-75, the S&P 500 declined 45% over 21 months, the worst bear market since the Great Depression. During the same period, the price of gold tripled, sending the value of rare gold coins accelerating even more.

Today we see stark signs of stagflation that every investor should prepare for by accumulating physical gold investments.

First of all, drought conditions are creating the conditions for a coming spike in food prices, a key component in the cost of living:

http://www.foxnews.com/us/2012/07/17/historic-drought-conditions-can-lead-to-higher-food-prices-experts-say/?test=latestnews

Secondly, the US economy is stuck in the mud, not going anywhere. Today Fed Chairman Ben Bernanke said as much and predicted that the stagnant economy would stay that way. He also offered no hint that the Federal Reserve would take any action to try to stimulate economic activity.

http://www.ft.com/intl/cms/s/0/704622f8-d016-11e1-a3d2-00144feabdc0.html#axzz20vOzSIxM

So, there you have it: rising prices combined with an economy stuck in the mud: stagflation.

History tells us that investors need to protect and build their wealth in such circumstances with gold investments.


Two Possible Crises on the Horizon

July 16, 2012

There are two recent news articles recently published which point to two possible crises on the horizon for which investors better be prepared.

In both cases gold investments offer the best means of protection.

The first article comes from the Financial Times, which often places its articles behind a registration requirement so we will excerpt and summarize here…

Food crisis fears as US corn soars

Is the world on the brink of another food crisis?

It has become a distressingly familiar question. With the price of agricultural staples such as corn, soyabeans and wheat soaring for the third summer in five years, the prospect of another price shock is once again becoming a prominent concern for investors and politicians alike.

http://www.ft.com/intl/cms/s/0/ad1ec426-cd07-11e1-92c1-00144feabdc0.html?ftcamp=published_links%2Frss%2Fmarkets%2Ffeed%2F%2Fproduct#axzz20hO4WLRV

Essentially, what the Financial Times is warning us about is that the recent heat wave and drought conditions across much of America’s breadbasket threatens to bring us sharply higher food prices. Already we have seen the price of corn rise 44%, wheat 45% and soybeans 17%. This is similar to the type of price spikes which occurred in 2007-2008 when there were food riots in some 30 countries.
The food crisis in those days contributed to the economic crisis which touched off the worst bear market in stocks in a generation. It should be noted that the price of gold rose in both 2007 and 2008. This suggests that gold investments could provide a safe haven from any crisis that is touched off by this sudden development.
But the food crisis is certainly not the only crisis on the horizon and, while we all know about the tenuous situation in Europe, what many people do not realize is that America has severe debt problems of its own that could conceivably touch off a crisis not unlike what Europe is going through now. One key difference however is, if the US debt situation reaches crisis proportions, who will bail the US out???

Per capita debt in the United States is higher than in all — or at least some, depending on how it’s calculated — the European nations that have accepted bailouts to date.

Based on official 2010 International Monetary Fund data released earlier this year, the U.S. debt per capita is $46,208.

Here’s the same figure for the four European countries that have accepted bailouts.

Ireland: $41,906

Greece: $38,159

Portugal: $19,686

Spain: $18,162

It’s all too easy to dismiss warning signs such as this by assuming that the US is different or that our economy is too big and diversified for the debt situation to derail it.
Perhaps. But perhaps not. And even short of crisis, the US still needs to service its debt obligations, which are growing all the time. And one possible outcome would be a decision by Washington policymakers to service that huge debt burden with dollars cheapened by inflation. In such a scenario, gold would be absolutely vital to investors since the dollar would plunge in value and periods of high inflation have historically been bad for stocks and bonds.