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Where Should Gold Be Based on Inflation?

Phoenix Capital Research's picture





 

 

Since the Financial Crisis erupted in 2007, the US Federal Reserve has engaged in dozens of interventions/ bailouts to try and prop up the financial system. Now, I realize that everyone knows the Fed is “printing money.” However, when you look at the list of bailouts/ money pumps it’s absolutely staggering how much money the Fed has thrown around.

 

Here’s a recap of some of the larger Fed moves during the Crisis:

 

  • Cutting interest rates from 5.25-0.25% (Sept ’07-today).
  • The Bear Stearns deal/ taking on $30 billion in junk mortgages (Mar ’08).
  • Opening various lending windows to investment banks (Mar ’08).
  • Hank Paulson spends $400 billion on Fannie/ Freddie (Sept ’08).
  • The Fed takes over insurance company AIG for $85 billion (Sept ’08).
  • The Fed doles out $25 billion for the automakers (Sept ’08)
  • The Feds kick off the $700 billion TARP program (Oct ’08)
  • The Fed buys commercial paper from non-financial firms (Oct ’08)
  • The Fed offers $540 billion to backstop money market funds (Oct ’08)
  • The Fed agrees to back up to $280 billion of Citigroup’s liabilities (Oct ’08).
  • $40 billion more to AIG (Nov ’08)
  • The Fed backstops $140 billion of Bank of America’s liabilities (Jan ’09)
  • Obama’s $787 Billion Stimulus (Jan ’09)
  • QE 1 buys $1.25 trillion in Treasuries and mortgage debt (March ’09)
  • QE lite buys $200-300 billion of Treasuries and mortgage debt (Aug ’10)
  • QE 2 buys $600 billion in Treasuries (Nov ’10)
  • Operation Twist 2 (Nov ’11)
  • QE 3 ($40 billion in MBS monetization per month)

 

And this is just a brief recap. I’m almost certain I left something out. Indeed, between 2008 and today, the US Federal Reserve has grown its balance sheet from $800 billion to almost $3 TRILLION in size (larger than the economies of Brazil, the UK, and France).

 

The Fed is not the only bank to engage in such profligate policies either. Thanks to its bond purchases as well as its LTRO 1 and LTRO 2 schemes, the European Central Bank (ECB) has in fact grown its balance sheet even larger than the Fed.

 

Country

GDP

European Union

$16 trillion

United States of America

$14.5 trillion

China

$5.8 trillion

Japan

$5.4 trillion

European Central Bank

$3.8 trillion

Germany

$3.2 trillion

US Federal Reserve

$2.8 trillion

France

$2.5 trillion

United Kingdom

$2.2 trillion

 

As a result of this, inflation hedges, particularly Gold have been soaring. Gold was, is, and always will be THE ultimate storehouse of value. Mankind was prizing it long before the concept of stocks, mutual funds, or paper money even existed.

 

So with world central banks printing paper money day and night it is no surprise that Gold is now emerging as the ultimate currency: one that cannot be printed. Indeed, Gold has broken out against ALL major world currencies in the last ten years. The below chart prices Gold in Dollars (Gold), Euros (Blue), Japanese Yen (Red) and Swiss Francs (Purple):

 

 

Now, a lot of commentators have noted that gold is already trading above its 1980 high ($850 an ounce). What they fail to note is that thanks to inflation, $1 in the ‘70s is worth a LOT MORE than a $1 today.

 

$1 in…

Is Worth Today

1970

$5.49

1980

$2.58

 

For gold to hit a new all time high adjusted for inflation, it would have to clear at least $2,193 per ounce. If you go by 1970 dollars (when gold started its last bull market) it’d have to hit $4,666 per ounce.

 

If you do not already have exposure to Gold, consider getting some now. If you do decide to buy, I strongly urge you to buy actual physical bullion because it is not clear that the various Gold ETFs actually own the bullion they claim to.

 

How much you purchase is up to you. But you should have several months’ worth of expenses in gold and silver bullion. Why Gold and Silver? Because if the banks are closed or if paper money is worthless, you don’t want to be walking around with an ounce of gold (worth $1k+) to buy groceries. Instead, you will want some precious metals of smaller denomination to purchase/ barter with, hence the need for some silver.

 

This concludes this article. If you’d like more information on inflation and protecting yourself from it, we feature a FREE Special Report detailing the threat of inflation as well as two investments that will explode higher as it seeps throughout the financial system. You can pick up a FREE copy of this report at:

http://gainspainscapital.com/gpc-inflation/

Best Regards,

Graham Summers

PS. We also On that note, feature a FREE report concerning the threat of a European Banking Collapse. It’s called What Europe’s Collapse Means For You and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

This report is 100% FREE. You can pick up a copy today at:

http://gainspainscapital.com/eu-report/

 

 

 


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Mon, 10/29/2012 - 20:58 | Link to Comment MFLTucson
MFLTucson's picture

How can anyone come up with a price for Gold when inflation is unknown?  The numbers we get are bullshit not real inflation as are the employment numbers.

Mon, 10/29/2012 - 20:54 | Link to Comment Dr. Sandi
Dr. Sandi's picture

Gold isn't based on inflation. Inflation is based on gold.

And yes, I do have exposure to gold. Sometimes I press it against my butt cheeks and tell it to kiss me, baby, kiss me. But it's purely platonic. Besides, it's Queen Elizabeth. She's rich, but kind of long of tooth.

Mon, 10/29/2012 - 19:56 | Link to Comment AllWorkedUp
AllWorkedUp's picture

I'd love to see $4660. Tommorrow. That would be BEFORE inflation wipes out a bunch more of its' purchasing power. This is the slowest, most frustrating bull market in history. Can't even stand to look at all the shitty pm stocks anymore.

Mon, 10/29/2012 - 20:12 | Link to Comment jimmyjames
jimmyjames's picture

Can't even stand to look at all the shitty pm stocks anymore.

************

You must have missed buying the May/July lows huh-

I've bagged 40+% profits on mid tiers  in that short while and i have no intention of taking profits yet-

 

Mon, 10/29/2012 - 19:55 | Link to Comment jimmyjames
jimmyjames's picture

the US Federal Reserve has grown its balance sheet from $800 billion to almost $3 TRILLION in size

****************

Where do you get 3 trillion from?

It's almost 9 trillion and this is without counting the last bailout which will show up with a lag-

http://www.acting-man.com/blog/media/2012/04/CBs.png

Mon, 10/29/2012 - 20:31 | Link to Comment Bastiat
Bastiat's picture

 

Where do you get 3 trillion from?

Here (once you find the numbers keys . . . )

http://upload.wikimedia.org/wikipedia/commons/thumb/f/fa/Alphanumeric_keyboard.jpg/220px-Alphanumeric_keyboard.jpg

Mon, 10/29/2012 - 19:54 | Link to Comment THECOMINGDEPRESSION
THECOMINGDEPRESSION's picture

Screwtape files claim Siver is in a bubble, do not hold silver. I think their site is in a bubble

Mon, 10/29/2012 - 18:39 | Link to Comment The_Euro_Sucks
The_Euro_Sucks's picture

Dear Graham Summers,

Dont you know surgeing goldprices are good for the EUro and bad for the $? The ECB marks its gold MTM, strong for balancesheet. Fed has US treasuries..... Guess what I go for. Look at basel 3 with gold tier I asset and replacing governments. Us gold $42.22 or EUro gold recognising at $1700? What will oil do? Go gold or US treasuries mr Summers?

 

Edit, to be clear going gold is going EUro, US treasury going $$. Goldwars bitches, forget currency wars.

Mon, 10/29/2012 - 18:33 | Link to Comment ohreally
ohreally's picture

let's bring gold back to the 1970s, bitchez

Mon, 10/29/2012 - 17:52 | Link to Comment Stuck on Zero
Stuck on Zero's picture

In 1890 a good wage for a craftsman was a $20 gold piece paid every two weeks.  Today a craftsman would earn $3000 every two weeks.  That's about the proper ratio after taxes.  Gold is probably fairly valued.

 

 

Mon, 10/29/2012 - 14:03 | Link to Comment Blue Horshoe Lo...
Blue Horshoe Loves Annacott Steel's picture

Uh, limitless if idiots knew their fiat paper money was worthless.

Mon, 10/29/2012 - 19:42 | Link to Comment Enslavethechild...
EnslavethechildrenforBen's picture

Store some of that green paper under your bed for twenty years and then see what it's (not) worth then...

Tue, 10/30/2012 - 01:40 | Link to Comment Western
Western's picture

shadowstats

Do NOT follow this link or you will be banned from the site!