Only Silver Prices Below 2008 Levels, But No Inflation Yet

The U.S. Fed has on several occasions confirmed that Inflation remains subdued and so a non-issue yet as it shows no signs of rising in the immediate future. How many times have you heard or read that there is no Inflation because the CPI says so? Gold and Silver prices have been driven sharply to the upside on fears that the Fed’s stimulus to infinity may trigger massive inflation. After the recent notable decline in gold and silver prices, many precious metals investors are questioning whether or not to continue to hold their long positions, since inflation never showed up even after five years of non-stop money printing. At this point, it may make perfect sense to take a step back to gain some perspective on the matter by looking at the past, present and likely projected future of the gold and silver prices. Put simply, the manipulation in Gold and Silver prices has been picture perfect until now. Clearly, Gold and Silver paper derivatives do not seem to price in key fundamentals at this point. Movements in paper Gold and Silver prices are shaping the market sentiment, and are moving the precious metals far off the radar screen as an attractive investment. Nevertheless, the irony of physical demand for precious metals is that despite the recent decline in Gold and Silver prices, a surge in physical demand is occurring.

Macro sentiment still seems to be living in fantasy land. It tends to assumes that stock market corrections are cyclical and not secular in nature. There also seems to be an assumption being made that the Federal Reserve will step in to support a falling bond market. A housing market recovery seems to be happening, despite a clogged foreclosure pipeline creating considerable shadow inventory. The much touted non-recovery is finally manifesting itself via rising mortgage rates. The sad truth regarding pent up foreclosure-based shadow inventory will reveal itself soon. There has also been a hedge fund investor pull back from the PMs and lumber prices are falling. Moreover, every asset on earth trades ultimately based on interest rates. And with the Fed losing control of interest rates, it’s only a matter of time before the $70+ TRILLION bond market implodes, sending rates sharply higher and triggering a financial meltdown far, far greater than the 2008 Crash. Also by intervening on an almost daily basis in the bond market, the Fed has manipulated the entire US debt curve to the point that we are now heading for a Crisis far worse than 2008. The United States increasingly cannot afford its debt service. A Treasury bond market crash will likely ensue after signs of a pending default become clearer and clearer to investors. More pressure will be placed on the Fed to monetize, as the U.S. Dollar crashes hard. With respect to pensions and 401k plans, the coming market volatility will probably ‘convince’ the masses that the government knows better. Sadly, the ‘government guarantee’ seems to be the sacred cow that will be sacrificed to bring about the great “financialization” of everything.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

The Truth about Inflation and its impact on Gold and Silver prices
In absolute layman terms, an economic recovery or a rising economy implies that incomes are rising, debts are slimming and spending is seeing an up-tick. Rising incomes then further imply that there are more people holding jobs and a rise in spending declares that there is more demand for more things in the markets which in turn justifies higher incomes and more jobs for catering to the higher demand. Naturally, debts would be on a sharp decline as offloading debt is (or should be) higher on priority than fresh spending or creating new debt. But more obviously with a higher demand based upon spending rises, will enter Inflation. Higher the demand – higher the prices and vice versa is a market fundamental. But of late, by manipulating the paper market and economic numbers, the Fed wants us to Business.time ) That’s a 41% increase in four years, or an annualized rate of 9%. Taxes have gone up almost as much. Federal, State and Local income taxes and social charges (Social Security payroll taxes, for instance) have risen 35% over four years, an annualized rate of 7.8%. Even the cost of a Big Mac (McDonalds hamburgers) in the U.S. has risen from an average of $3.57 to $4.37, or 5.2% a year. So why these, more rapid increases haven’t shown up in the Consumer Price Index? One reason is that the index itself has been modified in a variety of ways over the past 35 years. Fluctuations in home prices have been smoothed out, for example. And the index has been adjusted periodically to reflect changes in what people buy, particularly if they shift from more expensive items to cheaper ones. Such revisions to the CPI have tended to reduce the official inflation rate, on balance. Various estimates of what the annual rate would have been over the past four years, if earlier methods of calculation had been continued, come up with numbers in the 5%-to-10% range. Several conclusions can be drawn from all this. First, there is no absolute and objective gauge of inflation. Any particular measure is simply one way of making the calculation, based on a host of assumptions. Second, a number of the costs that middle-class households face are going up considerably faster than the CPI. Inflation and real prices are rising more and faster than official statistics indicate. At the moment, these trends aren’t highly visible because the economy is so sluggish. But as the recovery continues, there’s every reason to think that they will become more widespread.

Only Gold and Silver can Bail you out from the looming Doom:
The last inventory clean out came after a bout of lower Gold and Silver prices. Just imagine what fear and greed will do to the remaining inventory and production, considering that massive damage to the mining sector has already been done. The latest market rout indirectly serves to support Gold and Silver prices in the long term by forcing numerous suppliers out of the market, as their productions become increasingly uneconomic. Once stock and Bond markets start crashing and the US Dollar ultimately meets its day of reckoning, scared investors will very likely rush out of bonds and equities to real stores of value like Gold or more into the now much more cheaper – Silver.