Inflation and Gold

A couple of weeks ago, I discussed the increasing inflation as reported in the CPI numbers. As I recall, the numbers work out to about a 7.2% annual rate.

Earlier this week the government released their numbers on personal consumption and expenditures. As is usually the case, the media put a positive spin on the data pointing to these numbers as proof of our ever-improving economy.

Let's do a little math. First they reported that wages increased by eight tenths of a percent in March. That works out to an annual rate of 9.6%. Well, that sounds good doesn't it? That means that if inflation is running at 7% then we are coming out ahead right?

Wrong. If you read a little further in the report, something that no reporter did, you will see that our savings rate remained negative in March. In fact savings came in at negative $32.5 billion. So if wages increased and savings was negative then we spent more than we earned in March. That means that the increases in wages are really nothing more than inflation. So our annual inflation rate is running closer to 10% annually. Maybe a tad higher because in a addition to spending our raises, we continue to pull money out of savings and go further into debt. And that is sure not due to the purchase of vehicles. Just ask the big three auto makers who reported large drops in the sales of cars and trucks.

Now this week gold has been on a tear and the media is blaming the increase on tensions in Iran and the steadily increasing price of oil. Those of us who read between the lines know better. Gold is on a tear because of inflation. Based on the new inflation numbers we have gold could hit $745 per ounce by the end of the year.

If you factor in a conflict in the Middle East over Iran before year-end then the sky is the limit for gold

Is the run-up in the price of gold over? Hardly. It would be well worth your time and money to own a little bit of gold.