The Everyman Economist

What is up with Gold and Silver? Prices!!! They are through the roof. What started several years ago way down at $250 an ounce for Gold and $4 an ounce for Silver is now a runaway train, with prices recently topping $900 and $16 respectively. And many analysts are predicting even higher prices in the months ahead. So what’s fueling this raging bull market in precious metals and will it continue?

It’s no surprise that the US twin deficits, creeping inflation, record oil and gasoline prices, weak dollar and declining stature abroad are all at the heart of the surge in the bright and shiny stuff. They’re a great place to park at least some of your money when all of the above fundamentals are looking so doomy and gloomy. Since there’s little on the immediate horizon to change things, my bet is you haven’t seen the highest prices yet and when a bull market is raging, either ride the bull or get out of its way, lest you get gored, and I don’t mean Al.

Most recently, the newest catalyst in the picture is actually and perversely a weaker US economy. You see the worse the economy gets, the more aggressive the Fed will be in lowering interest rates, as evidenced by Chairman Bernanke’s comments last week that the Fed is prepared to do whatever it takes to help the ailing economy. When a Fed Chairman makes these remarks while inflation is beginning to rear its ugly head, that equals sensational news for Gold and Silver prices. And that’s why you’ve seen the most recent push over $900 and $16 in these favorite metals. Throw in the institutional demand from ETF’s (we’ll save that discussion for another time) and you have an all out barn burner.

It’s hard to say where this will all stop and if it will stop anytime soon, so you may as well get on board and ride the bull. Or at least buy some Gold and Silver Eagle bullion coins and tuck them away for a rainy day.  

This is my first blog entry so let’s be bold. First, Happy New Year to Everyone from the Everyman Economist. Second, the US dollar is not such a bad boy after all. Okay, it’s been sinking like a stone for several years, but that’s the result of economic policies that mortgaged the future to pay for the present. I love Ronald Reagan just like the next guy, but let’s face it folks, the collective deficits in both the Reagan and Bush administrations created a big heap of financial manure. Sure the economy chugged along, but if YOU borrowed tons of funds to spend on fluff and stuff and YOU didn’t give a hoot about paying it back, YOU would also be living it up big time. Guess what? That’s all about to change and the major beneficiary is going to be the US dollar. Of course that depends on some major changes in the White House and Congress, but my bet is this - enough is enough and YOU and I are going to throw the bums out. And make no mistake about it, the fish stinks from the head. Congress may be limp and asleep at the switch, but it’s very difficult for one political party to beat another when the leader is on the other side. So forget the disapproval ratings, the White House and Congress are going to the Democrats and that means the US dollar will only go in one direction - UP, UP, UP!

So why is the dollar going up you ask? For the opposite reason it went down, I answer. The US current account deficit and the trade deficit have both been out of control. If you compare the numbers with previous administrations, things look pretty darn scary. We’ve accumulated more red ink in the last 8 years than we amassed in the entire previous history of America. But just like things turned around in the roaring 1990’s, despite ”voodoo economics” and “deficits as far as the eyes could see,” it will turn around again during the next Democrat administration. And that’s not because the Dems are so much smarter, it’s simply because they didn’t drink the Kool-Aid. In fact, they actually believe that our twin deficits are bad, which is apparently lost on the Republicans. Say what you will about the Clinton dalliances, but the economic landscape during the Clinton administration was nothing short of miraculous. The economy grew, Americans prospered and the deficit was replaced by a surplus. What a novel experience, the country had money in the bank, not loans. And we’re likely in for the same in the not too distant future. So take off your mud boots and get ready for a shift. It won’t be immediate and things can always get worse before they get better, but if we change direction in the next election, the US dollar is in for a major recovery. And what does that mean for Everyman? Stay tuned.