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Monetary Inflation Continues Unabated. Gold Should Continue to Rise.

By Tony Hayes      Printer Friendly Version Bookmark and Share
Dec 4 2009 1:08PM

The US dollar may fall further against other currencies but all currencies including the US dollar are falling even faster against hard assets and this should continue.

US Dollar Falling Fast

The U$ has fallen against other currencies but they have all fallen against tangible assets including gold and other commodities as well as companies and by extension their shares.

The US$ is falling because its supply continues to rise at a rate greater than the increase in the supply of other currencies. Furthermore, the supplies of all currencies are rising at a rate faster then the supply of hard assets.

In the two weeks to December 2, 2009 the US Monetary base rose by 3.7% to $2.06 Trillion. This is up from $0.84 Trillion in pre-Lehman August 2009. In just 15 months the US Monetary base is up a staggering 145%. The increase alone is almost 1.5 times greater than all of the reserves ever created and all of this in just 15 months.

Massive inflation of money has already taken place. What is usually thought of as inflation, CPI, has yet to show up but it is on the way. All metals still have along way to go and with them the shares of the companies that produce them as well as those which are exploring for them.

The following chart shows the impact of monetary inflation thus far on the price of gold. Apart from the latest plot for the price of gold, which is for the average for the month of December to-date, the remainder shows the monthly averages.

The forecast is what can be expected from the monetary expansion already in place. It is extremely doubtful that there will be any contraction on money supply. There might possibly be a levelling off as in the period from 2005 to 2008 once the western economies stabilize. However, as was the case in the earlier period inflation was already baked in the pie and the price of gold caught up with money supply once the housing bubble had finished inflating.

Tony Hayes CFA,
December 3, 2009
905 468 0130



Tony is an all-round investment professional with a broad range of credentials, skills, contacts and work experience in Canada, England, the United States and Australia.