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Inflation...It Just Won't Go Away

By David Vaughn      Printer Friendly Version Bookmark and Share
Dec 7 2010 9:32AM


Reminds me of the 800 pound purple gorilla in the room that everyone pretends is not there.  Same with talk about inflation.  Congress has been down playing inflation, can’t see it anywhere. 

What is inflation?  Simply, when prices go up.  The cash in your wallet is worth less and less.  More and more paper dollars are continuing to be produced in our economy.  Just a matter of time before inflation raises its ugly head   Cranking up the printing presses until they over heat. 

Our money and savings are going down the tube, but no raises for the middle class.  Inflation is unofficially measured by moms who go to the grocery store every week.  And guess what she notices?  Prices for those gallons of milk keep going up. 

China has just locked up more of their Chinese money with the central bank twice in one week.  China continues to take more and more money out of the economy before inflation begins to really take off with all the new stimulus money created. .  And the Peoples Bank of China is increasing its bank reserves.   China is not ignorant or pretending not to see inflation growing just around the corner. The trend in the Asian countries is unquestionable.  The gold demand in China rose 450 tons last year. China has overtaken India in terms of gold sales. 

I believe that gold’s major exercise is to protect wealth in times of rising inflation.  I remember 2002 like it was yesterday.  At that time gold was just beginning to thaw from its two decade freeze.  In 2002 investors slowly were coming to see its worth again.  And from 2002 gold began to climb after 20 years being DOA. 

Tell me honestly…who would have believed ever in 2001 that by 2010 gold would climb from 253 an ounce to over 1,400 dollars an ounce.  I am never one to predict at any time what the price of gold will be, but we all can recognize the trends easy enough if we open our ears and use our brains.

Economic and financial problems are only getting worse and worse.  A blockhead could easily see this building.  So where will gold be in 2015?  Don’t know.  And for the record I’m not sure where any of us will be.  I can guess that our belts will grow tighter and more will be sleeping on park benches. 

A cousin of mine and her husband about 2 years ago were making well over 125,000 a year between both their jobs.  They were laid off within a few months apart.  Their house price reduced by 30%.  Their equity was gone overnight.  Now their house has been repossessed and they are living for free in another family member’s rental house. 

Always new cars and trucks, new boats, jet skis and other toys.  Every weekend boating and camping out at the lake.  And those previous days and previous life style are gone forever.  It is predicted that next year, 2011, will see even a greater rate of foreclosures than we have seen yet.  And the other cousin who owns a dozen paid for rental units continues to do well. Also, no debt.  While one cousin spent a decade playing every weekend at the lake my other cousin was building wealth and paying off debt.  

If you remembered my writing back around 2000 to 2002 I said often that there will always be 20% of the population doing well while the other 80% move in to sleep with the hogs when the money dries out. Don’t forget the story of the wise virgin who kept her lamp full of oil.  Never know when that extra oil might save your family.

Gold is a wise investment.

But how many real wise investors do we see?  For the past 10 years everyone was told that their savings were solid and protected by their growing equity in their homes.  And that was a handy bank as over the years families would pull more and more of that equity out of the home.  And the value of your house would always go up. Right? 

The home was really considered the family savings bank. Never realizing the day would ever come when their house price might drop overnight 30 to 40%.  And now on top of everything else North Korea is pushing to start World War III. 

My grandfather during the depression years had his own company operated above the garage.  And every day my grandmother would go to the mailbox to get the checks to take to the bank to deposit.  In their neighborhood they were the only ones making money and working.  My grandfather wanted to increase his yard gardening so he bought out a bankrupt nursery for $10,000 dollars.  My father would often remind me that he was the one selected to plant the 10,000 bucks of new plants. 

In their generation they were part of that 20% I talk about.  During the depression years over 10,000 new millionaires were created.  Gold overshot in 1980 because of double digit inflation.  Yet, the government has not even admitted to inflation here.  I wonder how high gold will have to climb when all these newly created trillion dollar stimulus dollars eventually filter into the regular consumer markets. 

Time to learn something about gold and to educate yourself. If you are interested in studying gold stocks and learning about mining John Doody is a wonderful and practical teacher and analyst.  Just be sure and take notes if you start absorbing his research.  Really not much money for what you will learn.    A prudent investor who is able to invest in learning and studying will generally receive far better returns than those on the cheap wanting everything free, including knowledge. 

Any thing worth while in this world costs something.  Including great sacrifice. 

Familiar with gold and silver mining stocks?  Now gold stocks are for speculation.  Physical gold is insurance.  Most people really can’t discern the difference because they have always used paper to buy their groceries.  And there is nothing like physical gold and silver to outpace the worst inflation.  And of course the mining stocks generally climb when gold rises. 

Another excellent value gold has is the fact that no one is making any more.  The world is running out of all resources.  How far we’ve come since 2001.  I call the 1990s decade the “Glory Decade”.  One our generation will probably never see again. 

Gold acts as a barometer guaging just how bad world financial and economic conditions are going down hill.   When the last super bull market was climbing to the stars gold almost dropped lower than 250 an ounce.  Gold is now correcting itself with the demise of all past busted magic bullets.  And by 600%.   That rise is indicative of a collapsing economy.  A significantly increasing gold price always means currencies are depreciating and investors are quickly losing their confidence.  And their overall consumer buying slows down and the boat in the back yard is sold.  Read the conditions of all the world’s ecomonies.  Get out of debt and own gold.

Diversify your savings by putting at least a significant percentage of physical and real silver in your portfolio.  Always own a stable hard asset such as gold to sell when cash needs to be raised to pay the bills.  As we see inflation rise we shall also see gold rise.  And gold will outpace inflation. 

David Vaughn
Gold Letter, Inc.



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