Phil Anthropy

Louis James on Why the Big Gold and Silver Spike Will Be Even Bigger This Time

I have heard that the price of gold is subject to manipulation by gold repository banks on a grand scale. If this is true, then gold remains a speculative play. Other commodities, such as food, are less speculative. For instance, the prices of milk and orange juice are up huge in the past 18 months. Since the price of gold is dependent on both industrial demand and fear, and is also subject to possible supply adjustment by banks leasing gold from their colleagues (among other techniques), being a gold bug at this level is risky. If the U.S. has a deflationary recession, which would be good for banks holding undefaulted mortgages, gold prices will languish. However, the long-term risk-reward ratio of gold is probably as good as most speculative investments.

Interest Rates Rising, Gold Declining: What Am I Missing?

Rising interest rates do not necessarily imply classical monetary inflation. If foreign governments diversify out of our treasuries, interest rates may rise without a weakening dollar, particularly if the Fed sells its foreign currency reserves to support the dollar or if the excess dollars are recycled into dollar-denominated commodities/futures. Unless the dollar weakens, gold should not increase in price as a currency hedge, although global demand could drive the price higher through normal market forces. Since both high inflation and deflation would have dire consequences for our economy, I think the Fed will try for stagflation. That implies to me that the dollar will weaken slowly, and that gold will increase in price slowly as well. I look for about 10% per year increase.