Can double digit inflation exist in the headline number and "core" inflation remain muted? Does the cost of energy and food influence the cost structure of the world? Will China suddenly quit importing oil and food, causing prices to fall? Will the real world ever become known to the statistically challenged individuals creating government estimates of inflation? Those are questions that investors need to answer. Many investors have already answered these questions, and voted with their money. The chart below is our way of awaiting what may be a shocking event for investors. The ten year return on US$Gold is slowly moving up in a way that it will soon exceed that on U.S. paper equities, as measured by the S&P 500 total return.
Decade old bear market for U.S. dollar continues. Today, CNBC noted that the S&P 500 had not set an intra day high above that set in 2000. Is there a message here? Monetary illusion evident in the value of paper equities versus the return on paper equities should not be ignored. News seems to drift in daily on asset meltdown now taking place below the surface in mortgage related investments held by speculative hedge funds(See NYT, 19 June). Which fund will be first to flame out due to speculating in exotic mortgage products? As that happens and carnage spreads, the U.S. dollar will come under increasing selling pressure. Gold will be the investment that benefits, and continue the move to more than $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 firstname.lastname@example.org.