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ShadowStats U.S. CPI Inflation Running at 4.3%, Gold $2,382, Silver $139

Economics / Inflation Jul 17, 2010 - 06:07 AM GMT

By: Jesse

Economics

ShadowStats U.S. CPI Inflation Running at 4.3%, Gold $2,382, Silver $139

Best Financial Markets Analysis ArticleSomething Weimar this way comes?

There is almost no doubt in my mind that we will see these prices for gold and silver. I am just not sure exactly how we will get there, and when. But I expect the unexpected, or at least that which is not expected by the many.




The gold / silver ratio between those prices is 17, which is close to the historically important ratio of about 16. The legal ratio of gold to silver set in France in 1803 was 15.5, and this was emulated in England and later in the US.

Obviously I am thinking of a return to a world bi-metallic 'weak standard' through the inclusion of both gold and silver in the basket of currencies that will be replacing the dollar as a unit of value in international trade. There are also several movements in the developing world to adopt silver for domestic use as a store of value. I think they will gain some traction as the currency wars intensify.

The current ratio is about 67. I cannot help but feel that silver is going to be simply amazing when its time comes, in part due to the decades of price suppression by US banking institutions.

According to the latest report from Shadowstats:

Alternative Consumer Inflation Measures

"Adjusted to pre-Clinton (1990) methodology, annual CPI inflation was roughly 4.3% in June 2010, versus 5.4% in May, while the SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, was about 8.4% (8.37% for those using the extra digit) in June, versus 9.2% in May.

The SGS-Alternate Consumer Inflation Measure adjusts on an additive basis for the cumulative impact on the annual inflation rate of various methodological changes made by the BLS. Over the decades, the BLS has altered the meaning of the CPI from being a measure of the cost of living needed to maintain a constant standard of living, to something that no longer reflects the constant-standard-of-living concept. Roughly five percentage points of the additive SGS adjustment reflect the BLS’s formal estimate of the impact of methodological changes; roughly two percentage points reflect changes by the BLS, where SGS has estimated the impact not otherwise published by the BLS.

Gold and Silver Highs

Adjusted for CPI-U/SGS Inflation. Despite another recent all-time high in the price of gold in the current cycle, gold and silver prices have yet to approach their historic high prices, adjusted for inflation. Even with the June 28th historic high gold price of $1,261.00 per troy ounce, the earlier all-time high of $850.00 (London afternoon fix, per Kitco.com) of January 21, 1980 has not been breached in terms of inflation-adjusted dollars. Based on inflation through June 2010, the 1980 gold price peak would be $2,382 per troy ounce, based on not-seasonally-adjusted-CPI-U-adjusted dollars, and would be $7,689 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars.

In like manner, the all-time high price for silver in January 1980 of $49.45 per troy ounce (London afternoon fix, per silverinstitute.org) has not been hit since, including in terms of inflation-adjusted dollars. Based on inflation through June 2010, the 1980 silver price peak would be $139 per troy ounce, based on not-seasonally-adjusted-CPI-U-adjusted dollars, and would be $447 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars.

As shown on page 22 in the Hyperinflation report, over the decades, the price of gold has more than compensated for the loss of the purchasing power of the U.S. dollar as reflected by CPI-U inflation, while it has effectively fully compensated for the loss of purchasing power of the U.S. dollar based on the SGS-Alternate CPI."

By Jesse

http://jessescrossroadscafe.blogspot.com

Welcome to Jesse's Café Américain - These are personal observations about the economy and the markets. In providing information, we hope this allows you to make your own decisions in an informed manner, even if it is from learning by our mistakes, which are many.

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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