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So much attention has been put on the stock market lately that the message in gold and silver prices is going unheeded.

April 06, 2011 – So much attention has been put on the stock market lately that the message in gold and silver prices is going unheeded. Sure stocks are looking good on the surface, and with all of the economic shocks lately “people don’t know what else to do with their dollars,” says the National Inflation Association (NIA). But the market is floating on a sea of excess liquidity and has no support from the fundamentals, which two important ratios make abundantly clear.

The first is the Dow/gold ratio, which is simply the amount of gold required to buy the Dow. When that is in steep decline, as it has been for the past decade, it is a sure sign that equities are losing value. Economic conditions are coming together in all the wrong ways and a repeat of the previous cycle’s plunge to 1 — or even lower — is all but assured.

The second is the gold/silver ratio, which has also been in rapid decline, indicating a broad movement to silver as a safe haven alternative because its lower entry point has become attractive despite silver’s reputed volatility.

On March 26 the NIA published 12 warning signs that hyperinflation is just around the corner. They aren’t really news, but collectively they present a powerful case.

We know that the Fed is repatriating sovereign debt with funny money, that the private sector is bailing out of Treasuries, that China is dumping Federal notes and stockpiling gold, and that Japan is unloading theirs to help fund reconstruction.

The deficit for 2011 is projected to be 43% of total expenditures — proposed budget cuts, if enacted, won’t change that one iota — and that is exactly the point where hyperinflation hit Brazil and it is higher than Bolivia’s when hyperinflation stormed in there.

The effect of monetization with no fundamental support is to drive up long-term Treasury yields, and repatriation means we will be left holding the bag. The Fed will try to ward of inflation by raising the funds rate, and in just a few years we could well be paying 30% – 40% of revenues on interest alone. Hyperinflation always hits when that reaches 40%.

There’s no denying where we are headed, and there is no denying the investing in gold and silver today will prepare us for when we get there.

Shannon King

Senior Staff Writer – GoldSilver.org

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