Thursday, March 31, 2011

Money divided by Goods and Services = Price

Inflation and wealth preservation

Inflation is a much misunderstood word. Does it mean a general increase in the CPI, or money supply, or both?

To illustrate what inflation actually is, here's some examples:

3 dollars in coins + 3 loaves of bread = 1 coin will buy 1 loaf of bread

6 dollars in coins + 3 loaves of bread = 2 coins to buy 1 loaf of bread

In this example, what has changed is the money supply. It now takes more of your coins to but one loaf of bread because someone (read: Central Bank) purposefully created more dollars out of thin air (fiat money).

How does this steal your wealth? Well, the 3 coins you still have in your bank account will have to increase by a factor of 2 just to buy the same loaf of bread! Ouch. And what should make us even more 'upset' is the fact that whoever gets first use of those new coins from the Bank will get to use them at top value and not your watered down value.

Now can you see why the large Investment Banks get to profit from higher commodity prices?

In Roman times 2000 years ago, 1 oz of gold would have bought you a nice toga, a good quality coat and a pair of fine leather sandals. Today that same 1 oz will buy you a good quality suit. Same amount of gold, same amount of wealth and purchasing power.

(for more on this see : "Stories from the Desk of a Bullion Banker" by Philip Judge)

Wednesday, March 30, 2011

Bubbles Pop

Bubbles pop. At least that's what they do when they get too big for the pressure inside verses the thinness of it's skin.

Many say gold and silver are also in bubbles. Their skins are too thin and the pressure too great. They are going to pop. The price is going to go 'poof'.  We in the precious metals camp will all get a woof of air in our faces instead of money.

Let us think about that for a moment.

Are their skins too thin? Well if you consider that only around 3 - 5% of all Americans (and probably New Zealanders) own gold and silver in any form, then I would think the skin be quite thick. In other words, a lot of buying is needed before we even think about thin skins.

Imagine if the participation rate in this market went to 10%. I have seen figures that in the late 1980's around 25% of the worlds wealth was placed in gold investments. The figure today is around 0.02%! No bubble to see here folks. Skin quite thick, pressure OK.

There's still time to participate in this market and protect your wealth. As long as money is being produced out of thin air and the money base increasing exponentially, then asset prices will go up. It's a law.

More on : Money divided by Goods and Services = Price tomorrow

Tuesday, March 29, 2011

Wake me up to Gold and Silver

Wake me up...

It's the old 'frog in a slow boiling pot' trick. The poor old frog doesn't realize he's being boiled alive, slowly, until it's all too late.

Take that analogy and apply it to todays world. If you had been asleep for the past three years and suddenly woke up today, you would probably be in shock as to the state of the world as compared to March, 2008.

We've had market crashes and market rises, countries go bust and countries change regimes. US dollar expansion by the Fed like there's no tomorrow. And house prices, which were supposed to always go up, belly-flopping dramatically.

Maybe its best we all go back to sleep. At least that way the pain and shock is less evident.

Or we could rise to the challenge and take opportunities as they arise. And there are many out there.

Gold and silver continue their long term secular bull-run and give us the opportunity to invest and preserve our wealth as we stop and consider the opportunities ahead.

Precious metals can get us over that initial shock of the realization that QE/Money Printing is stealing our wealth daily and can help us rationally consider our next steps. Allow us to 'splash water on our face' and wake up slowly, have breakfast and read the news without panic.

Are you awake?