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Gold: Home on the Range
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(April 20, 2004) The gold markets last week showed us some excitement – a drop of about $20 in 48 hours’ time. The sudden move was invigorating, and brought out lots of bargain hunters - once they got over the shock. With inflation picking up, gold-buyers are looking for some protection.
It was on December 1, 2003 that gold breached the $400 price level for the first time in eight years, and by February 2004 was trading at $430, a level not seen since 1988. Since then, the range of gold prices has been $390-$428.

the current gold market show strong support at sub-$400 levels, and considerable selling in the $420s. Gold’s current trading range is about five months old, with the typical patterns of a well-established price range.

So in our world of rolling dollar inflation, it can safely be said that gold prices are currently dormant.

The same can’t be said about the material stuff of everyday life, which seems to be not merely increasing, but accelerating in price. And the ‘official’ annualized CPI rate of 5.1% seems laughingly understated to anyone who actually pays attention to consumer prices while shopping or paying bills.

Yet, the common perception of inflation today is, to say the least, a bit skewed, due in no small part to the Byzantine manner in which Washington manipulates the Consumer Price Index numbers to maintain the illusion that inflation (the devaluation of the dollar) simply isn’t happening.

Many of the popular media have swallowed that government line almost totally, as commodities maven Leonard Kaplan found recently:

“On the front page of Sunday's Chicago Tribune was the following headline, “Prices rising despite low inflation rate”. I must admit that upon reading it, I chortled like a banshee being tickled. It was just too “Orwellian”, too much like reading the book 1984 where the psychology of the populace is engineered by the government by use of the language. So, I guess we don’t have inflation, we just have rising prices. Next time I get caught by a policeman for speeding in my car, I will carefully explain that I was not speeding, I was just exceeding the posted limit. Wish me luck.”

Following the same Newspeak form, Mr. Kaplan goes on to say, “I hereby state that I am not bullish on the gold price, I just expect prices to rise.”

But we are starting to see media awareness that, yes, inflation is a factor today. “Higher Prices Hit Home,” the New York Times article was headlined last week. “Middle class, poor sense rising impact of inflation” sub-headed the article, which related anecdotes of how higher prices for everything from gasoline to eggs to prom dresses was causing hardships for families on a budget. Louis Uchitille writes:

“The inflation rate, barely noticeable for years, is rising again in the United States. Even if many American families have yet to curtail their spending, they are certainly annoyed.”

Here in Phoenix, Kenneth LaFave of the Arizona Republic wrote of higher lumber prices in his article of 4/19, “Lumber Prices Reach Sky High.” Quoting Home Depot store manager Roger Winn on the price of “oriented-strand board” (a substitute for plywood),

“A sheet of OSB that was $5.11 a year ago is now $19. But it’s like gasoline, what are you going to do? People who started projects last year have to finish them. Where are they going to go?”

In the same article, Chris Harrison of homebuilder Fulton Homes said, “I’ve never seen the cost of anything go up so dramatically. In the last two weeks, we’ve seen almost a spike in lumber costs. There’ve been increases in electrical, because copper’s going up, and drywall costs more. But not as bad as lumber.”

Closer to home, we just received our own lesson in inflation this past week. For some time now, we have been contracting with a common carrier to transport loads, varying from 2,000 to 8,000 pounds of a low-grade silver ore, to a neighboring state to be crushed and assayed. For calendar year 2004 so far, shipping charges have been a consistent 16c per pound, with a 4% ‘fuel surcharge.’ That added surcharge, though new this year, seemed fair enough, since oil prices are definitely up lately.

But this past Tuesday the same carrier quoted us a new rate - 24c per pound, a full 50% increase. I asked the clerk to re-check his quote. No, he came back, that was correct, the new cost for this 400-mile trip is now 24c per pound.

Oh, and he mentioned that we shouldn’t forget that there was a 4% fuel surcharge on top of that. “Oil prices are up, you know,” he cheerfully informed.

Our conclusion is, as always, gold. Gold is the perfect antidote to inflation.

As Don Stott recently stated, “To realize that your "money," which you have so assiduously saved for a rainy day, is rapidly becoming mere pieces of paper with no purchasing power, is enough to give one nightmares.”

The cure for nightmares, is, of course, to wake up. Wake up and realize that inflation, while never really ‘barely noticeable’ over the past decade or so, is now so obviously on the rise that even the popular media are starting to acknowledge it.

And wake up to the fact that to swap some of your faith-and-credit-based currency for gold is simply to bring part of your wealth back to the world of tangible reality.

 

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