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Gold is Already Predicting the Next Fed Chairman

By Graham Summers      Printer Friendly Version Bookmark and Share
Mar 1 2011 3:56PM

www.gainspainscapital.com

Gold is acting fishy.

Indeed, while emerging markets are generally going up in flames (literally) Gold hasn’t done much of anything since October 2010. Heck, we haven’t even retested the previous highs despite all the turmoil.

It’s odd, Gold should be above $1,500 per ounce by now given what’s going on in the world. By all counts demand for the precious metal is increasing dramatically. 

Central banks became net buyers of the precious metal last year. China gold purchases rose five fold. Indian purchases of bullion are believed to have hit a record last year. Even the US mint ran out of Gold Buffalo coins in September 2010.

So what gives? Why is Gold not EXPLODING higher yet?

I have a sneaking suspicion the market is beginning to discount some MAJOR changes in the US Federal Reserve… changes that NO ONE seems to be talking about. Those changes are*:

  1. There will be no QE 3.
  2. Bernanke will be dumped as Fed Chairman.
  3. Kansas Fed President Tom Hoenig will be the next Fed Chairman

*some of this analysis stems from a conversation with Bill King of Ramsey King Securities

Regarding #1, the whole QE game is over. I know that most folks believe Bernanke will issue QE all the way to infinite, but the actual likelihood of this is low given the public’s outrage over the continued bailouts and the like. Obama and the rest of Washington can sell out to the Wall Street banks all they want. But when the US starts experiencing the sort of turmoil that is rocking the Middle East (and it will, mark my words) the QE game will end.

Regarding #2, there are “three stooges? involved in the Great US Swindle occurring today. They are, the big banks, the politicians, and Bernanke. When the public starts rioting which one of these three is going to be sacrificed?

Bernanke.

The big banks have been in power in the country for most of its history. They might get broken up or rearranged, but the elite banker class will always exist no matter what reform. Ditto for politicians.

But Bernanke? He’s just an academic puppet. He can be replaced by another figurehead while the system remains in place. Indeed, I fully expect Bernanke is going to be canned as Fed Chairman before this term is up. Whether it’s Obama making a “Hail Mary? play to attempt re-election by trying to look like he’s actually engaging in reform or some other political move, market my words, Bernanke is the one who’s going to be sacrificed.

Regarding #3, Fed Kansas President Honeig recently uttered a series of absolutely INCREDIBLE remarks concerning the US Federal Reserve. He said the US has “deeply? undermined free-market capitalism and that the TBTF banks pose the “greatest? risk to the economy.

These statements are absolutely extraordinary coming from a Fed insider. Remember, these guys are all ultimately politicians, so this kind of aggressive is a clear indication that Hoenig has seen the writing on the wall and is distancing himself from Bernanke as much as possible in order to present himself as a potential future Hawk Fed Chairman who would be called in to reign in inflation much as Paul Volcker did in the ‘80s.

However, before all of this happens, I fully expect we’ll see another bout of inflation similar to that which occurred in the 70s. You can already see this happening as inflation hedges explode higher across the board:

Asset

Price 1/1/10

Price 2/22/11

% Change

Oil

82.75

94.64

14%

Gold

1,137

1,397

23%

Silver

16.81

33.05

97%

Wheat*

5.53

7.62

38%

Corn*

4.25

6.79

60%

Cattle

85.00

110

29%

Sugar**

26

31

19%

* per bushel

 

 

 

** cents per pound

 

 

Both Gold and Silver will perform well in the coming months. However, their performance will pale compared to other, less well know inflation hedges.

Why?

Everyone knows that Gold and Silver are the most obvious inflation hedges out there. And to be blunt, anyone who invests in these two assets will likely do very well in the coming months as inflation erupts in the US.

However, to make truly ENORMOUS gains from inflation you need to find the investments that are off the radar… investments that the rest of the investment world hasn't discovered yet.

Good Investing!

Graham Summers

 

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