Reality can truly be a shocking experience. For more than a year, paper equity markets have been deluded into thinking interest rates would decline. Suddenly, looking around the world the discovery was made that interest rates in most countries were rising or were going to rise. Decades ago, the U.S. set domestic interest rates. Today, interest rates are controlled by global investors. At the margin, U.S. interest rates will be set by central banks of China, Japan, Korea, and others. With U.S. interest rates more likely to rise than fall, fantasy forecasts for U.S. economic growth will fade. The next phase of the collapse in housing & mortgage markets is now in sight. Rising rates also means that the hedge and private equity funds' leveraged mania is on seriously borrowed time. As the U.S. moves into a paper asset bear market and a financially dysfunctional state, dollar has only a long-term down trend.
The graph portrays year-to-year change in U.S. export prices. This measure gives some insight into rate of dollar inflation in the world. Globally, dollar inflation is rising as world is awash in U.S. dollars. Some may continue to talk about nonsensical concept of core inflation, but reality of world is a far higher rate of dollar inflation. Given that purchasing power of U.S. dollar, as shown in chart, is declining at about a 5% annual rate and that U.S. is headed into recession, protecting your wealth with Gold is an important act. Gold's price has fallen recently in sympathy with collapse of paper asset markets, providing an excellent chance to buy at a relatively low price. $650 Gold is a bargain relative to a long-term price target of $1,400+.
GOLD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. To subscribe to these publications go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html. June issue of The Agri-Food Value View, an exploration of unfolding agriculture and food investment super cycle, is now available. To receive a copy, write agrifoodvalueview@earthlink.net.
