A Graphical Illustration Of Inflation

A Graphical Illustration Of Inflation
Remember when $25, 000 was a success? Now it is a garbage collector

Sol Palha

All above charts were take from www.futures.tradingcharts.com

The long term trend in all the charts above are up. Even Gold and Silver bullion are doing rather well. From its low of 250 Gold bullion is up 55% and Silver from its low of around 4.30 is up 39.5% or so. Clearly we can see that the basic goods are reacting faster to inflationary pressures than Gold or Silver. The reason is simple these goods are necessities, they are used every day and so when more dollars are chasing the same good, prices go up. In terms of Gold and Silver they are not necessities, but weapons against inflation. The problem as we have repeatedly stated in the past is that the average Joe has no idea that Gold is a currency and second of all it is a hedge against inflation.

Eventually as the price of basic goods keep rising, the masses will slowly awaken to the fact that things are slowly going out of control. Then you will have the media slowly openly embrace the concept of inflation and put the fear of God into the masses and they will jump into Gold not because they think it is a good investment but simply out of pure fear.

That is why it appears that the last stage of this Bull Run will be the shortest and the most profitable. However the only way to benefit from is to be in it before the masses start to panic. Just think of the Nasdaq and the Dow in 1999. By the end of 1999 the Nasdaq was up over 70%. Only difference here is that some stocks could be up several thousand percent in the last phase of the commodities bull. Two possible examples are CDE and GSS both of which we took initial long-term positions in the 1.50-1.70 price ranges. I expect CDE to eventually trade in excess of 24 dollars (that's assuming Silver does not take out its old highs, if it does which we think it will, then 24 might just be the tip of the iceberg)

If one really looks at how much these shares have appreciated from their lows, the recent pullbacks appear to be perfectly normal. HL traded as low as 78 cents, CDE as low as 63 cents, GSS as low as 43 cents, WHT as low as 73 cents, MNG as low as 38 cents, CBJ as low as 35 cents, NEM as low as 17.93, MFN as low as 87 cents, GOLD as low as 2.91, BGO as low as 36 cents etc, etc

One thing everyone should remember is that this is a commodities bull and not Just a Gold and Silver Bull. It is even possible that many other commodities on a percentage basis will perform a lot better than Gold. One clear example right now is oil; from a low of 10 to a high of 42 it gained over 300%.

The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

John Maynard Keynes 1883-1946, British Economist

1 July 2004