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Taylor Says Gold Remains Storehouse of Wealth with Inflation or Deflation

Release Date: 
Friday, August 10, 2012

Gold prices rose amid higher inflation concerns resulting from a reduction in U.S. crop production that may food drive prices higher. Gold was $5.20 higher at 7:16 a.m. Pacific Time on the New York Spot Market, trading at $1,623.20 per ounce. Spot silver was $.05 higher, trading at $28.29 per ounce. (Click here for the most current spot prices.)

The Department of Agriculture on Friday reduced its estimate of U.S. corn production this year, with the worst drought in 56 years decimating the corn crop and pushing prices to record highs.

Almost 63 percent of the contiguous U.S. is experiencing drought after the hottest month on record in July, the National Oceanic and Atmospheric Administration said. Corn prices have increased approximately 29 percent this year in the U.S., with 17 out of 31 analysts surveyed expecting still higher prices next week.

Food prices worldwide in July increased the most since 2009 as droughts damaged crops in several nations, according to a United Nations Food & Agriculture Organization index.

"We have seen gold running higher this afternoon. I think this is a spillover effect from the USDA crop report out today, which is confirming fears of a reduction in production," said Ole Hansen, a senior commodity strategist at Saxo Bank. "This is indicating that we could see continued high prices for some of these key crops in the months ahead, and especially in some emerging economies, this could lead to higher inflation towards the end of the year."

Jay Taylor, publisher of the website and newsletter, recently discussed gold's historical role as a store of wealth during inflationary and deflationary periods. Taylor said that some observers see sovereign debt levels in most major global economies causing hyperinflation. If this occurs, gold may rise to $10,000 per ounce, he said. The contrary view holds that there may be a period of deflation due to sovereign debt where gold may only rise to $2,000 per ounce.  According to Taylor, the net result on gold's relative purchasing power is similar in either inflationary or deflationary times.

(Sources: "Gold Bulls Strengthen On Outlook For Additional Stimulus," Bloomberg, August 10, 2012; "PRECIOUS-Gold up slightly on food inflation worries," Reuters, August 10, 2012: "If hyperinflation ahead gold to $10,000 - if deflation, $2,000 – Taylor," Mineweb, August 6, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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