Gold: The Ultimate Deflation Hedge

Posted On May 24, 2016 By

  • A crash like 2008 is coming, only worse
  • The Great Depression makes the case for gold
  • Is recent dollar strength a mirage?
  • The case for $85 oil by Christmas
  • The TSA makes a major change… Mexico invading Texas… The war on cash continues… And more!

“Everything that made the crash in 2008 so painful,” Jim Rickards warns — “debt, too-big-to-fail banks and derivatives — are all worse today.”

His grim conclusion: “I believe this means an even worse crash is in the cards sooner, rather than later.”

But that’s not all: “Since 2010, the world has entered into a currency war. That means countries are trying to weaken their domestic currencies relative to other nations’ so they can increase inflation and stoke economic growth.”

Combined, Jim believes these two dynamics will ultimately send gold soaring to $10,000 per ounce.

The alert reader may spot a seeming contradiction here: One event seems massively deflationary — not for nothing is the word “crash” invoked. The other, inflationary, as nations debase their currencies to gain a competitive export advantage in a high-stakes game of beggar thy neighbor.

Conventional wisdom, of course, assumes gold is the ultimate inflation hedge. But how can gold reach $10,000 in a deflationary environment?

In a recent interview with the Canadian Broadcasting Corp., Jim points out a startling fact:

“History shows gold is the best hedge against inflation. But history also shows it’s the best hedge against deflation. The longest period of sustained deflation in U.S. history was 1929–33. And the price of gold went up 75% during that time.”

Now, it is true that the price of gold was set by the government in those far-off days of the gold standard. It’s difficult, therefore, to claim gold prices did this, that or the other. But history does provide a substitute gold proxy, if you will. Tracking its performance through the mid-1930s provides a clear window into the gold market during a period of extreme deflation…

Homestake Mining, the blue chip mining company of its time, is an excellent stand-in for gold.

The chart below compares gold — represented by Homestake Mining shares — with the Dow Jones through the teeth of the Great Depression. Behold:

Gold Soars

Gold way up, the market way down. One dollar invested on the eve of the Depression was 50 cents by 1935. But one dollar invested in Homestake Mining mushroomed to $5.50. Gold demand soared in the face of bitter deflationary head winds. Because of them, actually.

Here’s smoking-gun evidence that gold could be the best hedge against deflation, as Jim said.

He explains why in the CBC interview: Higher gold prices indicate “a vote of no confidence in central bank policies.” The deflation is proof that central banks have failed. And people want an anchor they can trust: gold.

[When gold goes up, mining stocks can go up even more. Just look at Homestake Mining.

“Gold mining stocks offer the most bang for the buck,” Jim notes. And he thinks right now is the perfect time to profit from select mining stocks:

“Gold and gold miners have taken a beating the last few years. After a long bear market, however, gold prices are finally starting to stir. Can it last? My answer is a definitive yes.”

That’s why Jim’s just introduced Rickards’ Gold Speculator. It exploits a small window that’s opening in the market, a window that only rarely opens. And it can close rapidly. But when it’s open, the getting can be good. Really good.

How does the idea of turning every dollar invested into $192 sound to you?

Click here to learn more.]

Let’s look in on Mr. Market, shall we?

It’s a red-letter day on Wall Street. The Dow’s up a rollicking 200 points this morning. The S&P added 25 points, and the Nasdaq is flashing a 76-point gain at writing.

Financial and tech stocks led the assault. With new talk of a June rate hike, banks climbed as Treasury yields jumped toward a three-week high.

It’s also a good day for homebuilders. New home sales surged in April to their highest levels in eight years, indicating that demand for housing is robust. An S&P index of homebuilders is on pace for its biggest gains in more than two months.

Meanwhile, oil tacked on 34 cents this morning, despite the stronger dollar yackety-yak. A barrel of light sweet crude presently fetches $48.42.

And gold? The rate hike talk is spooking the market for now. The yellow metal coughed up about $15 this morning, perhaps giving investors waiting for a pullback a chance to “buy the dip.”

Tough talk by certain Fed members about a June rate hike has put wind in the dollar’s sails. But will it last?

Trend trader Michael Covel is spelling Greg Guenthner of our very own The Rude Awakening this week. And despite recent dollar gains, Michael sees the beginnings of a downtrend for the greenback.

Description: Description: Price of Gold

Michael lives in Vietnam, where the strong dollar of recent years has gone far. But now he thinks “The party might be over. The greenback is now in a downtrend.”

Michael says it reminds him of 2008–09, when everyone said the dollar would go to zero. Except in reverse.

“Of course, that turned out to be the bottom of the U.S. dollar, as you can see in the chart of the dollar index. And right now, after a big rally, the dollar appears to be entering a downtrend.”

Now, Michael’s careful to say “appears.” That’s because he’s a market agnostic. He’s not sure how long the trend will last. Nor does he really care. He just follows it while it lasts. And the overall trend is down:

“Because a signal on the downside doesn’t mean I know how low this move might go. That’s not the point. The signal says down. I trust my trend following system.”

Michael has developed a trading system that lets you make money whether the market goes up or down. And he doesn’t even have to predict future moves. All you have to do is follow the trend. To learn more about Michael’s system, click here now.

$85 oil… by Christmas?

If the dollar does soften this year, it should light a fire under oil prices. But $85? Jody Chudley, our natural resource maven, spells out the case. But it’s not really built on a weak dollar. It’s based far more on simple supply-and-demand fundamentals.

Jody cites the work of Mike Rothman, an oil analyst at Cornerstone Analytics with an unusually clear crystal ball.

Rothman says official supply-and-demand numbers are out of whack. He believes that institutions like the International Energy Agency (IEA) have vastly underestimated global oil demand figures.

For example, the IEA has had to revise its initial demand estimates upward in 14 of the last 15 years, says Jody, based on information from Raymond James. “The average adjustment to demand has been an incredible 700,000 barrels per day,” he notes. 700,000 barrels a day!

Meanwhile, Rothman sees a dramatic fall in global oil inventories later this year. He expects more than 500 million barrels to be siphoned out of global storage by the end of 2016. In the chart below, note how his projections fall off a proverbial cliff as 2016 progresses.

The Vanishing

If the market plays out in this fashion, oil prices could turn on a dime, according to Jody:

“When an entire market that has been betting against a certain stock or commodity suddenly gets wind that they are wrong, the rush in the other direction can be amazingly swift and the market price move shockingly large. The strength in oil prices in recent weeks could quite likely be more and more market participants starting to see what Rothman has picked up on.”

“If he is right,” Jody adds, “the party is truly just getting started.”

True, there’s a lot of “ifs” here. But it’s a story that bears watching.

Relief is on the way for the flying public.

If you’ve taken to the aerial ways recently, you’ve likely been subjected to L-O-N-G airport security lines that have added hours of joy to your trip.

Airport Security

But take heart — change is in the air. Kelly Hoggan, the Transportation Security Administration’s assistant administrator for the Office of Security Operations, has been shown the door.

And that should change everything, right?

But to prove the maxim that nothing succeeds like failure when the government’s involved, Hoggan was awarded a $90,000 bonus even as security lines were becoming unmanageable.

Worse, his bonus was meted out in increments of $10,000, which means the TSA was probably trying to hide it from prying eyes. After all, a $90,000 check might draw interest. A $10,000 one might not.

This might be an inexcusably cynical take, but could this whole thing be a TSA ruse to get more funding?

We hint here at the “Washington Monument syndrome,” or the “Mount Rushmore syndrome,” depending on your fancy.

If government agencies face cutbacks or want more money, they put on a show. They cut back on services most visible to the public — national parks, police, airport screening — to prove the value of their services. The public suffers as a result. “I came all the way to see the Washington Monument and now it’s closed?”

Then folks write letters to their congressmen beseeching them to fix the “problem.” And Congress responds by increasing funding or eliminating cutbacks. Then suddenly everything returns to normal. It usually works like a charm.

On second thought, we reconsider our position. The TSA wouldn’t do something like that, would it… would it?

“This is the most ridiculous response that I have ever seen,” was how one reader reacted to our suggestion of a less confrontational policy with Russia. We pointed out that Ukraine was once part of Russia, to which the reader retorted:

“Not standing up to Putin is going to get a lot of people killed. Texas, Arizona, New Mexico and California were once parts of Mexico. Would that justify Mexico invading the U.S. if they had the wherewithal to do it? I don’t think the people of those states would want to be ruled by Mexico any more than the Ukrainians want to be ruled by Russia. The Russians in Ukraine are all immigrants just like the Mexican population in those states, yet Putin claims those people need protection. That’s nothing but a ridiculous justification for invasion… That’s just silly!”

The 5: Our question: Would Russia risk nuclear war over a Mexican invasion of Texas?

“We preach to the world about our great values, but that’s in the past tense,” laments another reader.

“We are no longer a beacon of freedom. We have been preaching the gospel of freedom by dropping bombs on people for all the wrong reasons. We have brought about changes in governments we had no business sticking our nose in. Our freedoms are a thing of the past. Our ship of state is shot to pieces. We only await her sinking.”

The 5: You’ll be voting for Trump this fall, we presume.

Off to another war — the war on cash.

“I would like to add my latest experience on cash,” writes a reader. “I flew out of Vegas and had to pay $25 for my checked bag. They would not accept cash. I had to go to a ‘conveniently’ located ATM and pay a $5 service charge for a $25 debit card payment.”

The 5: You were what’s known as a captive audience. “Captured” would be more like it. Just another signpost on the road toward the cashless society, we reckon.

Regards,

Brian Maher
The 5 Min. Forecast

P.S. What if there were a way you could have made 24 times the move in gold? Meaning if gold went up $1 per ounce, you could have made $24.

What about 34 times? Or… a whopping 192 times?

Can you imagine what that kind of move could’ve done for your portfolio? Your wealth? Your family? That’s the power of “Penny Gold.”

Fact is, those gain examples are NOT cooked up. They’re 100% real. With the right timing, they could have happened during gold’s last big move.

But gold’s next move could be even bigger. And Jim Rickards thinks it could soon reach $10,000 per ounce, or more.

For your chance to turn gold’s next big move into a life-changing fortune, click here.

Description: Gold Window

But please, act fast. The “gold window” is open, and this opportunity may not last long!

Click here to get started.


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