Are We Approaching An Inflation Tipping Point?

by: Jay Taylor


As you can see from the chart above, our IDW has risen slightly above the downtrend line from its April 28, 2011 high of 159.51. This week it closed at 159.34, but in fact it briefly hit a new high on June 20th when it surpassed the old high by a whisker, closing at 159.53.

Might our IDW be suggesting a breakout in asset price inflation is about to take place? Could it in fact be presaging the start of John William’s hyper inflationary depression in which prices rise exponentially even in light of massive unemployment and bankruptcies?


One point worth noting is that commodity prices have been much stronger of late. The stuff required for the real economy as opposed to equity markets has been showing price strength of late. Copper has suddenly shown new life, especially over the last couple of weeks. It closed at $3.16 this week and is up 7.6% since its March Low. Oil is up by 6.8% since its March lows and the Rogers Fund is up 9.2% since its January lows.

If we are on the precipice of a serious inflation problem, we should start to see materials prices start to take off. Although I fully respect the work of J. Michael Oliver and his views that gold and the dollar can both move higher in the longer run, I also believe in order for any serious inflation issues to take hold in the U.S., we will need to see a major decline in the dollar index. Michael provides his clients with an advanced notice based on changes in momentum and his work does not suggest dollar weakness at the moment. If anything, he is expecting a stronger dollar Index and a stronger gold price at the same time. But for the kind of hyper inflation that John Williams is steadfastly predicting, we will need to see a collapsing dollar. Looking at the moving averages above, the dollar Index closed at 80.07 this week. That’s below the 50-day moving average of 80.61 but decidedly above the 200-day average of 79.61.


Obviously the really big target would be the lows in 2011, when gold made its highs. The dollar fell below 74 then. If we are to see a collapse in the dollar of that magnitude, we might start to worry. But for now the prospects of that happening appear fairly slim.

However, one data point I am watching is the percentage of Global U.S. dollar liquidity that is held by foreign central banks. And as the chart above shows, it is in a steep decline ever since the 2008-09 decline. As the Fed is printing more and more dollars, foreigners are saying, “No thanks! We don’t want more of your fraudulent currency.” It is a trend that could catch hold with lightening speed and that would likely send global markets reeling. But for that to take place, monetary velocity will have to speed up and so far there are no signs of that happening as America’s dwindling middle class who is, out of necessity, holding on to every dollar they get to buy the absolute necessities of life. Thanks a lot, Alan Greenspan! Thanks a lot, Ben Bernanke for your policies of bankrupting America and its middle class!

Gold’s Average Price for June is $1,277.30

(click to enlarge)
Average monthly gold prices provide more appropriate data points for gold mining companies than random highs and lows. So ever since I left the metals and mining department at ING Barings in New York, I have kept those numbers back to 1995. They are based on the London P.M. Fix. Of course, as David Jensen is quick to point out, the futures markets have become ever more fraudulent, just as the U.S. economy and its policy makers have also become ever more fraudulent in recent years. There are virtually no markets these days in the U.S. that are not directly or indirectly manipulated.

So, please dear reader, don’t let anyone tell you that our problems are based on free market capitalism. With each and every intervention in the economy, the markets are not permitted to work efficiently and so with each round of intervention and manipulation the ultimate adjustment will be all the more severe.