Best of the Week
Most Popular
1.Canada Real Estate Bubble - Harry_Dent
2.UK House Prices ‘On Brink’ Of Massive 40% Collapse - GoldCore
3.Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - Nadeem_Walayat
4.Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - Marc_Horn
5.5 Maps That Explain The Modern Middle East - GEORGE FRIEDMAN
6.Gold Back With A Vengeance As Bitcoin Bubble Bursts - OilPrice_Com
7.Gold Summer Doldrums - Zeal_LLC
8.Crude Oil Trade & Nasdaq QQQ Update - Plunger
9.Gold And Silver – Why No Rally? Lies, Lies, And More Lies - Michael_Noonan
10.UK Election 2017 Disaster, Fake BrExit Chaos, Forecasting Lessons for Next Time - Nadeem_Walayat
Last 7 days
UK House Prices Momentum Crash Warns of 2017 Bear Market - Video - 22nd Jul 17
Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts - 22nd Jul 17
Warning: The Fed Is Preparing to Crash the Financial System Again - 21st Jul 17
Gold / Silver Shorts Extreme - 21st Jul 17
GBP/USD Bearish Factors - 21st Jul 17
Gold Hedges Against Currency Devaluation and Cost Of Fuel, Food, Beer and Housing - 21st Jul 17
Is It Worth Investing in Palladium? - 21st Jul 17
UK House Prices Momentum Crash Threatens Mini Bear Market 2017 - 21st Jul 17
The Fed May Show Trump No Love - 20th Jul 17
The 3 Best Asset Classes To Brace Your Portfolio For The Next Financial Crisis - 20th Jul 17
Gold Stocks and Bonds - Preparing for THE Bottom - 20th Jul 17
Millennials Can Punt On Bitcoin, Own Safe Haven Gold For Long Term - 20th Jul 17
Trump Has Found A Loophole To Rewrite Trade Agreements Without Anyone’s Permission - 20th Jul 17
Basic Materials and Commodities Analysis and Trend Forecasts - 20th Jul 17
Bitcoin PullBack Is Over (For Now): Cryptocurrencies Gain Nearly A 50% In Last 48 Hours - 19th Jul 17
AAPL's 6% June slide - When Prices Are Falling, TWO Numbers Matter Most - 19th Jul 17
Discover Why A Major American Revolution Is Brewing - 19th Jul 17
iGaming – Stock Prices - 19th Jul 17
The Socionomic Theory of Finance By Robert Prechter - Book Review - 18th Jul 17
Ethereum Versus Bitcoin – Which Cryptocurrency Will Win The War? - 18th Jul 17
Accepting a Society of Government Tyranny - 18th Jul 17
Gold Cheaper Than Buying Greek Villas in 2012 - 18th Jul 17
Why & How to Hedge the Growing Risks of Holding Stocks - 18th Jul 17
Relocation: Everything You Need to do for a Smooth Transition Abroad - 17th Jul 17
A Former Lehman Brothers Trader: It’s Time To Buy Brick And Mortar Retailers - 17th Jul 17
Bank Of England Warns “Bigger Systemic Risk” Now Than 2008 - 17th Jul 17
Bitcoin Price “Deja Vu” Corrective Sequence - 17th Jul 17
Charting New Low in Speculation in Gold and Silver Markets - 17th Jul 17
Bitcoin Crash - Is This The End of Cryptocurrencies? - 17th Jul 17
The Fed's Inflation Nightmare Scenario - 17th Jul 17
Billionaire Investors Backing A Marijuana Boom In 2017 - 17th Jul 17
Perfect Storm - This Fourth Turning has Over a Decade of Continuous Storms to Come - 17th Jul 17
Gold and Silver Biggest Opportunity Since Late 2015, Last Chance at These Prices - 17th Jul 17
Stock Market More to Go - 17th Jul 17
Emerging Markets & Basic Materials Stocks Breaking Out Together - 16th Jul 17
Stock Market SPX Uptrending Again After Microscopic Correction - 15th Jul 17
Global Currency Reserve At Risk - 14th Jul 17
Picking Great Gold Stocks - 14th Jul 17
BBC Tree Expert's Verdict on Sheffield Amey / Labour City Council Tree Felling's - 14th Jul 17
SPX Cycles, Fed Funds and Gold - 14th Jul 17
Should Platinum Be More Expensive Than Gold? - 14th Jul 17
What's Next for US Dollar, Stocks, Bonds and Gold? - 13th Jul 17
India Gold Imports Surge To 5 Year High – 220 Tons In May Alone - 13th Jul 17
Gold and Silver: Your Stomach Is Probably Wrenching Right Now - 13th Jul 17
Gold Industry Is In A Deep State Of Dysfunction, Delusion And Denial - 13th Jul 17

Market Oracle FREE Newsletter

Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts

Hidden Inflation Means Gold is Going Higher

Commodities / Gold and Silver 2013 Jan 22, 2013 - 04:39 PM GMT

By: Robert_M_Williams

Commodities

Back in 1980 the US experienced high inflation, close to 20% and with interest rates in excess of 18%, before the Fed finally got things under control. Companies had to raise prices and sales suffered as a result. In today’s world we are experiencing inflation, but it’s a lot harder to see. The government has changed the weighting of its inflationary indexes so the true effects aren’t reported. We also have more subtle ways of hiding inflation. Companies have learned not to raise prices since everyone can see that. Instead they’ve learned to quietly cut back on content while maintaining prices at previous levels.


 I do my own shopping and I’ve noticed that the cereal boxes carry less content, in terms of weight, although the box size often remain the same. Then there are companies like Starbucks! In Latin America they carried a certain brand of mineral water that costs them US $1.10/bottle, and then they sold to the public for US $2.50/bottle. I should add that it is a quality product. Four months ago they switched to a much cheaper brand, costing US $0.60/bottle, and yet they sell it at the same price. Then we have beer, a popular drink in Latin America selling for around US $2.70/bottle. Over the last two years the bottle size has been reduced from 640 ml to 600 ml, and now there’s a plan to reduce it to 580 ml. I suppose I don’t have to tell you that the price has remained constant.

I could go on but I think you get the idea. Companies find it difficult to raise prices, especially with Asian countries producing at excess capacity. So they quietly go about reducing content. The next time you go to the supermarket take a good look at the content you get for the price you pay. Pay attention to it over time and you’ll be surprised to see it shrink. They’ll be no notices or fan fair, just less content for the same price. That’s inflation, and it will never show up in the statistics.

We currently live in a world where the US, Japan, China and Europe are all printing currency at excessive rates and that is inflationary. On the other hand the Asians are flooded with excess capacity and are willing to export at cheaper and cheaper prices, even if it means a loss, in order to keep people employed. The standard of living has gone up considerably in Asia over the last decade and their leaders are afraid that rising unemployment will lead to civil unrest. Better to export at a cheaper price than lay people off! This of course is deflationary and that’s where we find ourselves today, trapped between two huge conflicting forces.

Demand in the US and Europe have been on the decline for two years and that is evident in the preceding chart of the Reuters CRB Index. You can see the series of lower highs and lower lows that have developed, but if you look closely you can see that the 50-dma has crossed back up above the 200-dma and the index has moved and closed above both. Can the CRB Index move up to post a higher high? Now look at the Baltic Dry Index and we can see the

same kind of deterioration over a long period of time. Then look at the far right of chart and you can see two higher lows. If prices are going to finally turn higher we’ll see the BDI move and close above the 50-dma as a first step.

One of the best warning signs of a coming inflation is gold so I want to take a fresh look and see if there are any new developments:

You can see that gold enjoyed a nice long run from its March 2009 low to the September 2011 all-time high. Then came the correction, shallow by past standards, and less than commodities like oil and copper. The correction lasted eight months and now gold is undergoing a process of accumulation. The difference between this accumulation and past accumulations is that this is the one that will push the gold bull market into its third and most profitable phase.

How close is gold to moving up and out of the accumulation stage? Take a look at this:

The spot gold has been headed higher for two weeks after making a significant higher low at the 1,630.00 support level. This move is taking us toward the higher end of a “flag formation” that has developed over the last three months. Once it breaks out of this formation with consecutive closes above 1,705.00, it will be a strong buy signal. Since gold is a long way from being overbought, it could easily run up to the next level of good resistance at 1,746.20. Now look at the Point & Figure chart below:

 

It has a bearish price target of 1,560.00 but a move and close above 1,710.00 would switch the signal from bearish to bullish, so we’re getting the same message from both charts.

In conclusion gold is about to do something significant and the key is the 1,700.00 to 1,710.00 price range. It is probable that we’ll see some sideways movement, maybe as much as a week, before we see the breakout. We may even see a break and close above the resistance only to see price fall back in the current range (1,674.50 to 1,700.00) for another week or so. This of course is nothing more than market noise and will serve to frustrate investors looking for fast profits, but that’s what gold does best. The gold bull is an expert at getting investors to do the wrong thing at the wrong time. For those of you who hold positions you should just sit tight right now. If you’re looking to add on you do it with a break down toward 1,674.50 should it occur, or consecutive closes above 1,710.00.  Either way gold is going higher over the coming weeks and months, so if you pay a few dollars more or less for an ounce of gold right here, it makes little difference.

Robert M. Williams

St. Andrews Investments, LLC

Nevada, USA

rmw@standrewspublications.com

www.standrewspublications.com

Copyright © 2013 Robert M. Williams - All Rights Reserved
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.


© 2005-2017 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

Catching a Falling Financial Knife