David Skarica: Gold Poised to Double as Fierce Inflation Looms

Friday, 29 Oct 2010 02:33 PM

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink
The price of gold is poised to at least double while fierce inflation is looming on the horizon, not deflation like the Federal Reserve fears, says David Skarica, editor of the Gold Stock Adviser newsletter and author of "The Great Super Cycle."

Inflationary cycles move in waves just like equity and commodity markets, and the United States should get ready for that wave to crest, Skarica tells Newsmax.TV.

Current monetary and fiscal policies that call for printing more money and running up debts also will only shoot consumer prices even higher, similar to what happened to Germany in the early 20th century and Latin America in the 1980s, Skarica says.

Story Continues Below



“Those economies were operating nowhere near capacity ... yet inflation went through the roof because of too much printing of money, too much government spending and too much debt,” Skarica tells Newsmax.TV.  “These are the things that really cause inflation.”

He said most U.S. officials are out of touch with reality and just don't understand what he thinks causes inflation.

Editor's Note: Get "The Great Super Cycle" at a Great Price from Amazon -- Click Here Now.

"They never go food shopping ... or their economics is flawed," he said. "They have their heads tucked into textbooks, which I don't think work in the real world."

For investors worried about inflation, gold is still a good investment, Skarica says.

He said a key long-term indicator for gold is the Dow Jones Industrial Average-to-Gold ratio. This simply divides the prices of the Dow by the price of an ounce of gold.

When it takes more than 20 ounces of gold to buy the Dow, gold is cheap and the Dow is expensive, he said. This happened in the mid 1960s and late 1990s, two timeframes when gold bottomed and the Dow topped. In 1999, the ratio hit 40 to 1, which meant gold was cheap and stock prices were very high.

When it takes less than two ounces of gold to buy the Dow, the Dow is cheap and gold is expensive. This occurred at two key market bottoms in 1932 and the early 1980s. In the early 1980s, the ratio was around 1 to 1.

“Right now we are still at 8 or 9 to 1 on the ratio, telling us that gold can go a lot higher,” he said.

He said he expects the dollar to continue to lose at least half of its purchasing power, so the price of "gold will probably at least double from here.”

The price of gold futures rose Friday, heading for a third straight monthly gain, on speculation that the Federal Reserve will increase debt purchases, weakening the dollar and boosting the metal’s appeal as an alternative investment.

Gold was up 2.9 percent for October as of Friday while the dollar had fallen 1.9 percent against a basket of six major currencies on bets that policymakers meeting on Nov. 2-3 will announce another round of so-called quantitative easing to bolster the economy. The precious metal reached a record $1,388.10 an ounce on Oct. 14. Gold futures for December delivery rose $5.30, or 0.4 percent, to $1,347.80 near midday Friday on the Comex in New York.

Meanwhile, emerging markets are a good investment going forward, including commodity producers Chile and Peru, rising giants such as Brazil and Indonesia as well as India, which will expand on improving infrastructure and past decisions to open its economy, Skarica says.

The situation in the United States, however, looks grim. Recent gains with the dollar in the past few years were largely due to short-covering positions, and neither Republicans nor Democrats will be inclined to take the painful steps necessary to improve the economy, with the former not wanting to raise taxes and the latter not wanting to slash spending.

As the British had to dismantle their empire in the 20th century, the United States will dismantle parts of its economy going forward, Skarica says.

“Where the U.S. is going to have its problems is Social Security, Medicare, Medicaid, the new healthcare that’s just been pushed though by Obama,” Skarica says.

“That is going to overwhelm the budget and eventually cause the U.S. to teeter on the brink of bankruptcy, and then they’ll have to dismantle the empire and probably bring troops home and do that sort of thing when they cut spending.”

China, a rising superpower and U.S. creditor, also may ease up on buying U.S. debt until Washington gets its fiscal house in order.

“China is kind of like a lax parent who’s letting the bad kid get away with whatever it wants right now because it’s in their interest … because they want Americans to buy Chinese goods,” Skarica says.

“So I think at some point, they’re going to have to discipline the kid.”

China recently has hinted on doing just that.

The country’s Ministry of Commerce said China should boost the amount of gold in its state reserves.

Meng Qingfa, a researcher with China Chamber of International Commerce, says China’s gold reserves should equal those held by the United States, the ministry said in a newspaper it controls, according to Reuters.

U.S. reserves stand at 8,133 tonnes, much higher than China's 1,054 tonnes, according to the latest data, and that gap must narrow if China’s currency, the yuan, is to become competitive.

“Doubtlessly, if the yuan is set to become an international currency like the dollar or the euro, China has to get a huge gold reserve to support it, and a reserve of 1,054 tonnes is far from being enough," Meng says.

Editor's Note: Get "The Great Super Cycle" at a Great Price from Amazon -- Click Here Now.

© 2014 Moneynews. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web

Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 

You May Also Like
Around the Web

Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved