Last Monday we watched rain, perhaps even some hail, fall on Wall Street’s parade. For two decades the Street had relied on a friend at the Federal Reserve to keep the rain off them. The 20-year era of ever descending rates protecting the paper asset groupies is over, and that realization is shocking them. Around the world paper equity markets are being ravaged by selling from hedge funds as they withdraw back to hide under their rocks. As the first graph shows, the sunshine has been in the Gold market and the rain has been on the paper parade for more than eight years. Part of that magnificent return was produced by the “sunshine” of money from hedge fund and other funds. Now they are withdrawing, producing a little rain on our Gold parade. That will pass, and bull market to over US$1,300+ will resume!
That first graph portrays the essence of the moneyization phenomenon. All around the world investors have been moving out of fiat money and paper assets into the one true global money, Gold. Wise investors were able to foresee the change in the investment climate years ago. The issue today is what the future holds, and that future is also bright for Gold. In Barron’s article, “Last Laugh” by J. R. Lang, 5 June 2006, Jimmy Rogers’s favorable outlook, past and present, is recounted. From the article,
“According to Rogers, new Fed Chairman Ben Bernanke is ‘an amateur with no knowledge of markets’ whose academic work revolved around how nations could avoid depression by printing more money”(p.19).
With a Federal Reserve Chairman willing to “print money and dump it from helicopters,” Gold bugs have a fairly secure future. The Federal Reserve has not had an inflation hawk since Volcker, and he was only appointed cause conditions were in a near crisis stage. Until a crisis stage again returns, the monetary and fiscal policy of the United States will hurt the value of the dollar and help the value of Gold.
