Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19
Is There a Stock Market Breakout Ahead? - 6th Nov 19
These Indicators Aren’t Putting to an Economic Resurgence - 6th Nov 19
Understanding the Different Types of Travel Insurance - 6th Nov 19
The Biggest Gold Story Of 2020 - 6th Nov 19
Best Money Saving FREE Bonfire Night Fire Works Show Sheffield 2019 - 5th Nov 19
Is the Run on the US Dollar Due to Panic or Greed? - 5th Nov 19
Reasons Why Madrid Attracts Young Professionals - 5th Nov 19
Larger Bullish Move in USD/JPY May Just Be Getting Started - 5th Nov 19
Constructive Action in Gold & Silver Stocks - 5th Nov 19
The Boring Industry That Hands +500% Gains - 5th Nov 19
Stock Market Chartology vs Fundamentals - 4th Nov 19
The Fed’s Policy Is Like Swatting Flies with Nuclear Weapons - 4th Nov 19
Stock Market Warning: US Credit Delinquencies To Skyrocket In Q4 - 4th Nov 19
Stock Market Intermediate Topping Process Continues - 4th Nov 19
Stock Market $SPY Expanded Flat, Déjà Vu All Over Again - 4th Nov 19
How To Buy Gold For $3 An Ounce - 4th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Gold and Silver Update, Is US Debt a Recipe for Economic Disaster?

Commodities / Gold and Silver 2010 Oct 30, 2010 - 07:07 AM GMT

By: Rosanne_Lim

Commodities

Best Financial Markets Analysis ArticleThe United States has dug the biggest economic hole in human history. It has become so severe that if you listen carefully, you’ll hear the Chinese – the biggest holders of American debt, wondering if they’ll ever get their money back. The foundation of the US dollar is already under threat. If it does collapse, it will take down other economies and currencies down with it.


At the summer 2010 meeting of G20 countries, European countries including the United Kingdom and Germany urged President Obama to implement austerity measures with them. The American president refused. Instead, he steered the economy in the opposite direction – by pumping billions more in the economy.

The United States is moving to the left. Meanwhile, European countries, recognizing some major flaws in their system, are moving right. Some socialist aspects of their societies are being reduced. For example, the tax burden on citizens and companies are being relaxed even as they decrease government spending. Europe is moving towards free enterprise.

In essence, the Obama administration plans to tax and spend the country back into prosperity. While it might make sense in theory, the policy has never been attempted in this magnitude before and it can fail (as Sunshine Profits we are believers in a small government). It is also important to note that more than four out of every ten dollar today is already borrowed – in stimulus spending. Another concern is that “redistributing” the wealth is inefficient.

For most, however, the above reasons are relatively easy to accept because there are limited choices on the matter. But the third consideration is more serious: the United States is already bankrupt. Continuing free-spending policies might hurt rather than strengthen the country’s economy. There is no longer enough genuine wealth to buy a way out of the debt that just seems to grow bigger each day.

Lower Purchasing Power

In 2007, the US Senate and the House of Representatives increased the Federal Government’s spending baseline to over $4.4 trillion. There is no money to pay for all the stimulus money. Already, the government is borrowing 41 cents for every dollar it spends. By August 2010, the country already has a debt of more than $1.47 trillion. In one way or another, taxpayers will have to foot the bill.

According to government reports, consumer prices only experienced an annual increase of 1.1%. But when you look around, basic food prices have increased by a dramatic 48% over the past year! This statistic is measured by the price of corn, wheat, canola, and oats. There are a lot of worrying implications to this development – it suggests that the jump in gold and silver prices is not only about supply and demand, it is also driven by the lower purchasing power of consumers. It is already showing up on the price of physical goods. 

Aiming for Demand-Based Inflation

The Federal Reserve has recently auctioned off $32 billion worth of three-year Treasury Notes as part of its short-term plan to sell $66 billion of debt. The notes have an all-time record rate of 0.57%. While the move has its champions, it is not without critics as well. Michael Berry, an investor and former fund manager, provides his insights. According to Mr. Berry, “Deficit spending is not working. So, ultimately, we have to grow out of this economic malaise, but right now organic growth doesn’t look like a plausible solution to the problem.”

As was mentioned in our previous article, inflation may be the only way out for the United States. However, Fed Chief Ben Bernanke has commented that inflation is too low. Another round of quantitative easing is expected. It should be pointed out though, that despite Fed efforts, the multiplier effect (banks lend out most their cash, some it return as deposits, which is once again lent out and so on) doesn’t seem to be happening. Mr. Berry said that, “The kind of inflation that’s being stimulated now is the cost-push inflation rather than demand-pull inflation. What Chairman Bernanke really wants and needs is a demand-based inflation, but it is not evident in the economy at this time.” As a note there - we prefer to define inflation as an increase in the level of prices caused by the increase in the money supply.

Given the magnitude of the problem, is there a way out? The solution is to reduce the deficit by cutting back on entitlement spending. This process will be highly unpopular and even painful for individuals who rely on Social Security. Manipulating money supply is no longer enough. Structural changes are necessary. Cutting back on spending can help balance the budget but it won’t be an immediate solution. This is because even if it’s implemented, the unemployment rate is still at 9.6% while underemployment (people working but are not doing so at their full capacity for example because they are highly skilled but work in low skill jobs) is at around 18.6%.

How Precious Metals Fared This Week

Gold and silver are increasingly being viewed as “real money” that’s capable of storing its value. It is also interesting to note that JP Morgan and other large US banks are restoring their old vaults to store the yellow metal and silver. The demand for physical gold remains strong and it will continue to be in the foreseeable future.

In the long-term chart (courtesy of http://stockcharts.com) of silver above, we can see that the rally has stopped at the $24 level. Looking at previous patterns, the target level of around $21 seems to be the point of correction and consolidation. Should that correction materialize, we expect it to be a pause in the rally, definitely not the end of the bull market.

There are certain investors who think that gold can top the $3,000 level in the next five years while silver might go as high as $50. In our view even prices twice as high ($6,000 and $100) are not out of the question. These are incredible predictions at this point. However, it is also reminiscent of October 2002 when silver was trading at $5. No one would have believed it can reach $24. The situation was the same for gold. Just a few years back, in 2004, it was valued at $400.

Precious metals strengthened on Thursday morning against the American dollar. Gold hit $1,345 an ounce while silver is now trading at $24 an ounce. With regards to other metals, their value is likely to rise in the long run as well. Take platinum and palladium, they are both have industrial characteristics. This will contribute to the increase as the emerging world rebuilds and develops. Meanwhile, uranium is also predicted to go up even if the United States isn’t significantly building up its nuclear capability because other countries are keen to go ahead.

If you are interested in knowing more on the market signals we analyze, we encourage you to subscribe to our Premium Updates to read the latest trading suggestions. We also have a free mailing list - if you sing up today, you'll get 7 days of full access to our website absolutely free. In other words, there's no risk, and you can unsubscribe anytime.
Thank you for reading.

Thank you for reading.

Rosanne Lim
Sunshine Profits Contributing Author

Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules