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$ 5,000 Gold and the Next Inflation Tsunami

It's not like you have to climb some mountain and squint out over the horizon. They are not hard to see. In fact, they're already at the pump and supermarket, staring you in the face without any apologies whatsoever.

Those damnable higher prices.

Sure, inflation in our day comes as no big surprise. It's now as American as apple pie. Thirty years ago you could have bought hamburger for well under a buck a pound, put it in your $ 8,000 BMW 320i and driven home to your $ 50,000 home. Over the years, the price of living has simply gotten higher. That much we've come to expect.

But prices rising at the rate they have over the last twelve months are a genuine cause for alarm. Let's look at just a few of these jaw-dropping increases.

Bringing Home the (Higher Priced) Bacon

Okay, let's see … got milk? It's costing you 26 percent more to get milk this year (as if you did not notice). Eggs? They're up 40 percent. Corn? 28 percent higher. And wheat? Well, the price of this very American staple has risen a mere 157 percent.

And it's not just food. Everything is up … and that even includes, ah, dirt. A nursery recently sold a 20-gallon bucket of soil for $ 4 one week, $ 10 the very next. No exaggeration. "Gas is up, delivery charges are skyhigh and we just had to raise our prices," was how the pained nursery manager tried explaining it.

He is not selling any alibis, either. Gas, as we all know well, is a lot higher. From a year ago (June 07 to June 08), gasoline has risen about a dollar around the nation. That's a 33 percent jump in 12 months, and it's what's fueling all the other rising costs.

Even so, the government's official rate of inflation is just 4 percent. One can only imagine the kind of creative math Washingtonian bureaucrats must torturously employ to reach fantastic stats like that.

But if you think the inflationary damage is over, the tide is now receding and it's time to concentrate on the clean-up, you might not want to break out the shovels and wheelbarrows just yet.

"Do not Go In the Water"

Remember that famous 1975 Jaws slogan? Well, it might apply today, too. That's because more inflational tsunamis are unduly on the way.

It's not just that the dollar has sunk. What's scary is that it still has a lot more sinking left to do. "More record lows in the Dollar Index can be expected," wrote analyst James Turk. "The bearish case for the dollar is overwhelming."

With the dollar being debased by the minute by record debt and lower interest rates -and with so many dollars out there courtesy of the Fed-anything priced in greenbacks is bound to cost you a whole lot more.

Add to that record demand for food, oil and goods by China, India and a host of other maturing countries and new surges in inflation should not be all that hard to understand. According to a recent USA Today article, "Pakistan is stockpiling wheat and using its military to guard flour mills. Indonesian consumers have taken to the streets to protest rising soy prices. country. " Not only is the world awakening to a voracious new appetite … it's also realizing that its going to be mighty hard to satisfy that hunger.

Then there's that fuel issue again. According to the Energy Information Administration, world energy demand will grow over 50 percent over the next two decades.

Maybe all of that is why at least one analyst put gold-that reliable antidote for sick inflation-at $ 5,000 an ounce in the not-to-distant future.

Your Golden Buoy on Stormy Seas

No matter how high the waves of a rough sea get, a buoy will always stay on top of it all … in much the same way gold stays on top of out-of-control inflation.

"You could easily see for the next several years that prices rise not to $ 1,000 an ounce, but prices rise to $ 5,000 an ounce or beyond as inflation psychology becomes more and more embedded and people become desperate to have a source of value, '' said Christopher Wyke, a commodities product manager who helps oversee about $ 10 billion in commodity assets.

He went on to say that demand for gold would also rise as central banks become net buyers for the first time in 20 years, driven by developing countries.

Wyke is not alone in predicting gold at those levels. In a Fox News interview, analyst Peter Schiff said that gold could attain $ 5,000 an ounce should inflation remain unchecked. Others echo the same thing. So why can not the Fed just stop inflation in its tracks by raising rates? "Talk about the Fed tightening is a joke," said William Chepolis, a Scudder fixed income manager. "They can not do that to the economy. There is still more pain out there."

Will gold actually hit $ 5,000 an ounce? Maybe not. Maybe it will hit $ 3,523. Or $ 4,377. Or maybe even $ 6,295. The point is, with another inflation tsunami on the horizon, gold could be your best self-defense. And the way things are looking, it may remain your best self-defense for years to come.

Source by Kevin A. Demeritt

About Joy Chetry

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