What Happens to Gold if We Enter a Recession or Depression?
By Jeff Clark, Casey Research
Mayan prophecies aside, many of the senior Casey Research staff believe that economic, monetary, and fiscal pressures could come to a head this year. The massive buildup of global debt, continued reckless deficit spending, and the lack of sound political leadership to reverse either trend point to a potentially ugly tipping point. What happens to our investments if we enter another recession or – gulp – a depression?
Here’s an updated snapshot of the gold price during each recession since 1955. Continue reading
Inflation Adjusted Gold vs Stocks vs Bonds
Recently our good friends at Casey research published the following chart comparing the inflation adjusted returns of Gold compared to stocks and bonds for the period 1971 through the present. From this chart we can see that as bonds fell during the late 1970′s gold rose equivalently and stocks were basically flat. During the 1980′s bonds rose and gold fell while while stocks rose slightly. During the 1990′s stocks rose sharply gold fell and Bonds were volatile but basically flat to slightly up. During the 2000′s gold was up sharply, stocks were volatile and bonds were pretty flat. Continue reading
Why (and How) China is Boosting the Price of Gold
The History of Gold Prices (and How We Got Here)
To get the full picture of the current price of gold we have to look back nearly 100 years. In the 1800′s and early 1900′s gold played a key role in international monetary transactions. The gold standard was used to back currencies. Each country determined a fixed exchange rates for its currency, i.e. how many ounces of gold each unit of currency was worth.
Trade imbalances (importing more than they exported or vice versa) could rectified via the exchange of gold reserves. A country with a deficit would have to ship gold to the country with an excess. Any country experiencing inflation would lose gold and therefore would have a decrease in the amount of money available to spend.
However, during WWI and WWII economic warfare was employed in an effort to combat poverty in ones own country by employing a policy called “Beggar Thy Neighbor”. This involved shifting demand away from imports onto domestically produced goods, either through government policy, rather than free markets. The primary vehicles were tariffs (or import taxes), import quotas, or by devaluation of the currency (i.e. changing it’s value in relation to gold). For example, During the 1930s, the British created their own economic bloc to shut out U.S. goods because they felt they couldn’t compete with cheap U.S. goods.
In July 1944, towards the end of the war 730 delegates from all 44 Allied nations gathered in Bretton Woods, New Hampshire. During this conference the U.S. held most of the cards because it was the least financially damaged by the War. The original plan presented by John Maynard Keynes was to establish a world-wide currency called the “Bancor”. Each nation’s individual currency would be pegged to the Bancor (rather than Gold) at a fixed rate. Governments would then be required to buy or sell Bancors in order to maintain the value of their currency at the pegged rate.
However, at Bretton Woods… Continue reading
The Fed Resumes Printing
By Bud Conrad, Casey Research
The Federal Reserve recently announced important policy changes after its Federal Open Market Committee (FOMC) meeting. Here are the three most important takeaways, in its own words:
- The Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
- The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. In the most recent projections, FOMC participants’ estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent.
- The Fed released FOMC participants’ target federal funds rate for the next few years.
Immediate Reactions Continue reading
How Global Financial Developments are Affecting the Price of Gold
Let’s face it. With the US economy facing the bitter consequences of extravagance and unscrupulous spending, it has become quite difficult for the US to manage both its public and private debts now. In this phase of post recession hangover and economic meltdown, the U.S. federal government has bumped up against its permitted borrowing limit. According to Alison Fraser, director of the Roe Institute for Economic Policy Studies, America’s debt just crossed $15 trillion, which means presently, the amount owed by the United States government to the world, is equivalent to the amount produced by the American economy per year. All these factors lead to higher prices and intensifying inflation concerns in the U.S.
Along with the U.S., there is the raising euro zone crisis where a number of European countries like Greece, Ireland, Portugal, Spain, and most recently Italy failed to pay their sovereign debts and consequently are heading towards insolvency. In fact Europe’s weakening economic performance literally forced the European Central Bank to follow more accommodative monetary policies. In short, both US and European economies are going through several years of sub-par economic commotion, high unemployment, and rising inflation. However in the midst of economic turmoil, when unemployment is up and there are conflicting tax increases, the price of gold is soaring almost beyond belief. It seems the skyrocketing gold price has a strong impact on both the dollar value and the European debt crisis as well. Read ahead, to know the latest forecasts about the future of Gold price. Continue reading
Another Way to Measure Inflation
In this article Jeff Clark shows us how to think about prices and purchasing power in a different way. The true measue of inflation is in relation to how much stuff your money can buy and in reality it is also related to the return you can get on your investment. If you can get 10% on your money a 5% inflation rate isn’t so bad. But if you own any assets and they are only appreciating at 1% (or worse yet depreciating) and prices are increasing at a 5% rate the value of your assets are declining (i.e. they are being insideously and secretly being stolen by the government printing presses).
In this article Jeff will give you another way to look at the issue of prices and perhaps open your eyes to something you hadn’t thought about before.
Wanna Beat Inflation?
In a recent article entitled Is Gold really a good Inflation Hedge? I showed the history of Gold and how it really was a fear hedge rather than an inflation hedge.
Interestingly, I just read an article entitled “Wanna Beat inflation? Forget Commodities!” by newsletter author Dan Ferris.
It seems almost like heresy to hear that statement from Dan since he writes commodity and oil-based newsletters. But some of the statistics he presented were very interesting so I thought I would pass them along to you. Continue reading
The Buzz Around Gold Is Growing Louder
By Jeff Clark, Casey Research BIG GOLD
I outlined last week the increasingly bullish consensus among analysts about gold stocks. The same pattern exists with gold itself; growing numbers of analysts have either joined the movement or have upped their bullish outlook.
The following comments and developments have all been reported just this month. It presents quite a convincing case when one strings them together like this. Keep in mind that this is what these analysts and managers are telling their clients. Continue reading
The Great Nugget Scam
By Doug Hornig, Casey Research
You know an asset class is hot when the scam artists start coming out of the woodwork. Such was the case during the real estate bubble of this century’s first decade, as those selling mortgages packaged them in ever more complex vehicles, many of which are now known to have been utterly fraudulent.
Is gold where real estate was?
No, not quite. But the notion that we are approaching the same ballpark seems borne out by one of the more creative scams we’ve seen recently. And we’re not talking about all those hucksters now trying to separate you from your old jewelry for a fraction of its value.
We’re talking about the great nugget scam. Continue reading
Soros Sells Gold- No Longer Fears Deflation
by Tim McMahon, editor
When I think of using gold for asset protection I think of it for protecting against inflation. But obviously I am all wrong (or maybe not). According to a Wall Street Journal article, billionaire George Soros sold his $800 million stake in precious metals in the first quarter of 2011 saying that he no longer fears deflation. What?
With inflation climbing, I can see why he no longer fears deflation… but why would he buy gold to hedge against deflation, in the first place?
