Will higher Fed rates reverse Fed inflation?
*Jim Sinclair's MineSet, by James Sinclair, June 8, 2006
The 70s Are Back For More Reasons Than Stagflation
“You did not stop inflation by jumping up and down on the gold price, the major barometer of inflation in the 1970s, nor can you in 2006.
Gold has always been a primary barometer of inflation whose price has been depressed from time to time by concerted action of central banks. They do this in hopes of killing inflationary psychology. Rather than doing that they have announced a more serious inflation presence, not its cure.
They have invited major interests into gold at more comfortable prices rather than keeping them out.
What you are seeing is nothing new at all. Similar action in the 1970s did not prevent inflation, dollar weakness, or create any change in the gold price bull market.
Yes this experience is quite uncomfortable for those without historical knowledge of the gold market. In the violent market of gold if you cannot stand the heat and you are now out, staying that way is quite advisable.
Again please read the definition of Stagflation which is gold positive and now visible, even though it has been in gear for a considerable amount of time.
Increasing costs and decreasing business activity = lower corporate profits and individual income = lower tax revenues plus exemption of the many from the Alternative Minimum Tax category = in the face of continue high spending an explosion in the US Federal budget deficit = in the face of a continuing US Trade deficit and a runaway US Current Account deficit = a severely lower US dollar = significantly higher gold prices = $1650 for gold!
Jumping up and down on the barometer of inflation, the gold price, will not stop the reality of inflation or the barometer itself.
Please look at interest rates, charted above, from 1968 to the first quarter of 1980 when gold moved from $35 to $887.50 and 10 year treasuries traded from over 100 to under 56. Keep this firmly in mind when the goldphobes yell at the top of their lungs today that higher rates kill gold and make the dollar. Those unfamiliar with history relive it uncomfortably.
Charts are from the Encyclopedia of Historical Charts, custom made by Top Line Investment Graphics (303-440-0157). TLI will make any chart you want as long as data has existed or can be interpolated to have existed. You order it. They will do it. All serious technicians must have the Encyclopedia of Historical Charts.
In conclusion do not fall for the concerted action presently in place to break inflationary expectations. It did not work in the 70s and will not now.”
“Jumping up and down on the barometer of inflation will not stop the reality of inflation or the barometer.” Jim Sinclair – August 2nd 1968 / June 8th 2006.””
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.