Daily Commentary

Classic Stagflation Situation

Gold and silver are both higher this morning, with gold gaining more than $3 and silver up about $.18.  Surprisingly the metals are gaining in spite of the fact the dollar is up 6 basis points at 71.71 and oil is down $.15 at $117.33 a barrel.  However, oil had reached a high of $118.05 to set a new record.  When that occurred both of the precious metals were higher. 

The latest data on home values indicates the median existing home price fell 7.7% over the year.  The inventory of unsold homes is now at 9.9 months and existing home sales fell 2%.  All of this suggests the problems in the housing market continue to be severe and are likely to worsen.  The Realtors Association indicates the problem in real estate will continue for some time and is not close to a bottom.  That means the banks and financial sector will continue to have significant problems as defaults increase and foreclosures set new records.  With the economy slowing, more people will be losing jobs and that means there will be less cash available to homeowners to make their payments.  There will also be fewer people looking to buy homes.  All of this suggests further problems for the banking and financial sector. 

On top of that, credit card defaults and consumer loan defaults are also on the increase.  The Wall Street Journal pointed out yesterday that insurance companies have $40.2 billion worth of unrealized losses on their books.  Thrifts and mortgage companies have $21.4 billion; financial services $6.6 billion and commercial banks have another $5.4 billion on their books that needs to be written off.  This is not an encouraging picture.  It means the Fed must continue to take action to try to assist the banks.  Moreover, Congress has yet to pass a bailout bill for either banks or homeowners.  Consequently, we should look for further fiscal and monetary stimulus to the economy, which should weaken the dollar more.

The dollar's strength this morning is likely due to the fact the Canadian government lowered their interest rates because they are experiencing similar problems.  All over the world home prices are falling and the major central banks have been trying to accommodate the difficulties that exist in the financial sector.  This is now an era of competitive currency devaluations.  That is probably one of the reasons why we see oil so high.  That combined with violence in the Middle East and Nigeria creates a very bullish situation for oil and a very inflationary situation for the world's economies.  

With inflation on the rise and the economy weakening, we have a classic stagflation situation.  The last time we had stagflation was in the late 1970's.  During that period gold prices skyrocketed as investors around the globe acquired gold to protect themselves from the combination of rising inflation and weakening economies.  We should be doing exactly the same thing today.  We should own gold and silver for the safe haven status it offers, for the protection of purchasing power, for the hedge against a falling dollar and simply because it has been the best performing investment.  Gold has outperformed stocks, bonds and all other asset classes except selected commodities for the past seven years.  This year gold is turning in an outstanding performance once again. 

Therefore, while we remain in this period of consolidation and base building investors should be accumulating gold and silver at bargain basement prices.  Call Goldline today to get started.  Ask them to explain the features, benefits and cost structure of the various gold and silver investments that are available to you.  Select those that best meet your own personal and individual investing needs and objectives.  Investors looking for low transaction costs may wish to consider bullion assets such as Krugerrands, Canadian Maple Leafs, American Eagles, Silver Bags and Silver Bars.   If you would like to take advantage of Goldline's Price Guarantee Program, which gives you a two-week window of opportunity in which to re-price your transaction to get more gold or silver for your money in the event of a correction, you should select assets that have some collectible value as this program is not available with bullion assets.   Swiss 20 Franc gold coins do have the availability of this excellent program.  When you acquire 29 Swiss 20 Francs you receive the 30^th Swiss 20 Franc gold coin for free.   When you invest $6,000 or more in qualified assets you can also receive free shipping on your entire order.  Call Goldline now to take advantage of the special offers at 1-800-827-4653.

If you would like to receive the free information package including a company brochure along with independent third party source articles and quotes and forecasts from major banks and brokerage firms call Goldline.  Goldline is happy to provide you with this information at absolutely no cost.  We will also send you a Coin Facts Risk Disclosure Booklet, which you should read carefully before making an investment.  Call Goldline at 1-800-827-4653.

Investors should be mindful that past performance does not guarantee future results. Transaction costs are generally 5% to 7% on bullion and 30% to 35% on coins. This is also referred to as the spread, or the difference between the buy price and the sell price. The market must go up enough to overcome this spread before an actual profit is achieved. All markets go up and down. Coins are a long-term, three- to five-year investment, suitable for 5% to 10% of the average portfolio. Please see Goldline's Risk and Disclosure Statement for further details.

Back to Daily Commentary