Real Inflation Rate vs. fake lies CPI

Discussion in 'Economics' started by The Kin2, Apr 21, 2006.

  1. Gold May Rise for Seventh Week on Demand for Inflation Hedge
    April 24 (Bloomberg) -- Gold may rally for a seventh straight week as investors seek a hedge against inflation and better returns than stocks and bonds, a Bloomberg News survey shows.

    Fifteen of 27 traders, investors and analysts surveyed from Sydney to Chicago on April 20 and April 21 advised buying gold, which rose 5.9 percent last week in New York and touched a 25- year high of $649 an ounce. Six respondents advised selling and six were neutral.

    Investments in commodity funds may reach $140 billion this year, including about $4 billion in gold, said Pierre Lassonde, president of Newmont Mining Corp., the world's biggest producer of the metal last year. Gold rallied 46 percent in the past year, in part because of the threat of accelerating inflation, and the metal may reach a record $850 by 2008, he said.

    ``Gold is saying there's more inflation coming than what the street or the official statistics are showing,'' Lassonde said in an interview. ``When you look at the inflation in our own business, in terms of labor costs, fuel costs, it's running well, well above the official inflation rate.''

    Newmont, based in Denver, said last week the cost of producing gold will be $280 to $295 an ounce this year, up 19 percent from $236 last year. The 9.3 percent jump in costs last year outpaced the 3.4 percent gain in U.S. consumer prices.

    Gold Gains

    Gold futures for June delivery rose $35.40 last week to $635.50 on the Comex division of the New York Mercantile Exchange, the biggest weekly gain since 2002. The rise was predicted by a majority of analysts surveyed April 12 and April 13. The Bloomberg survey has forecast the direction of prices accurately in 64 of 104 weeks, or 62 percent of the time.

    Gold for immediate delivery rose 5.1 percent to $633.97 in London last week.

    Gold has gained 22 percent this year as the dollar fell against 14 of the world's 16 major currencies. The Standard and Poor's 500 stock index gained 5.3 percent and holders of the benchmark 10-year U.S. Treasury have lost 4.1 percent.

    ``Gold will continue to attract funds as an alternative asset,'' said William O'Neill, a partner at commodity researcher Logic Advisors LLC in Upper Saddle River, New Jersey. ``The dollar seems likely to be defensive for a while, and the trend in oil remains positive.''

    Crude oil jumped to a record above $75 a barrel on concern that the United Nations will impose sanctions against Iran for its nuclear program, disrupting shipments from the world's fourth- biggest oil producer. Oil has risen 39 percent in the past year, sending U.S. retail gasoline up 22 percent on average to $2.783 a gallon as of April 17, government figures show.

    `Buying Like Crazy'

    ``Nobody wants to short the metals'' as long as energy prices are so high, said Ng Cheng Thye, head of the precious metals market desk at Standard Bank Asia in Singapore. ``Everybody's buying like crazy. I'd rather be on the long side.''

    Surging costs for gasoline and rents led to accelerated inflation in the U.S. last month. Consumer prices rose 0.4 percent after gaining 0.1 percent in February, the Labor Department said April 19. Some investors buy gold to preserve purchasing power because inflation erodes the value of fixed- income assets, such as bonds.

    Gold futures surged to $873 in 1980, when a jump in the cost of oil led to a 12.5 percent rise in U.S. consumer prices from the previous year.

    Interest Rates

    The U.S. Federal Reserve on May 10 probably will raise its benchmark interest rate for a 16th time since June 2004 to 5 percent to curb inflation, based on the median of 42 economists surveyed by Bloomberg News.

    Demand for StreetTracks Gold Trust, an exchange-traded fund that is linked to the price of gold, has risen 39 percent this year. The fund has 357.4 metric tons of gold, or 114.9 million shares outstanding, each representing a 10th of an ounce of gold. Together with similar gold-linked ETFs that trade in Australia, London and South Africa, the value of gold held is about $9 billion, Newmont's Lassonde said.

    The World Gold Council is planning to help list more ETFs in Dubai, Hong Kong and Japan, said Lassonde, 59, who is also the chairman of the council.

    ``We've created an alternative competing currency against the paper currencies of this world,'' Lassonde said in an interview from Denver. ``You are going to be able to trade that gold ETF 24 hours, seven days a week.''

    More Gold Holdings

    With more investment demand during the next seven years, the amount of gold held by the ETFs may reach about 8,000 tons, the amount of bullion held by the U.S. Federal Reserve, Lassonde said. The funds currently hold about 441.8 tons of gold.

    The precious metal will rise further because of the ``distrust of paper currencies and a search for alternatives to the dollar,'' said Adrian Day, who manages $95 million at Adrian Day's Asset Management in Annapolis, Maryland.
     
    #31     Apr 23, 2006
  2. Someone better tell Bernanke the jig is up. Green$cam left at the right time.

    Gold = $1000 by 2007.
     
    #32     Apr 23, 2006
  3. Excellent article. I have read some of these concerns before and it is always great to have another intellectual put in better & different context with additional info.

    Make sure you have a lifelong plane ticket to another county for that you to get the f**k outta Dodge is all I am saying.
     
    #34     Apr 23, 2006
  4. Question...

    Why are banks and bondholders settling on negative real returns? Interest rates on loans should be higher to compensate for inflation.
     
    #35     Apr 25, 2006
  5. Too much excess liquidity.
    See the money supply growth?
     
    #36     Apr 25, 2006
  6. In prior times "bond vigilantes" would keep the interest rates in line if there was too much fed money printing.

    Currently some economists spend much of their time trying to answer the very question you posed, kin2.

    For example, see Brad Setser's blog at:

    http://www.rgemonitor.com/blog/setser/

    The main theory is that many dollars the U.S. is spending on "stuff" around the world is getting recycled back into treasuries, keeping interest rates unnaturally low.
     
    #37     Apr 25, 2006
  7. I think the most interesting observation is to compare the rapid money supply growth that was started by Reagan to defense spending. It's not a coincidence that as the presses started printing cheap dollars, US army has grown into a powerhouse.

    Right now US is heavy on energy spending, particular alternative energy. Only Japan and Germany are ahead. As dumb & careless as US politicians seem, someone is making the right moves considering the current financial situation.

    Just smth to think about.
     
    #38     Apr 25, 2006
  8. K-Rock

    K-Rock

    #39     Apr 26, 2006
  9. Not really -- M3 publishing has been discontinued. :D
     
    #40     Apr 26, 2006