Higher inflation, lower short-term rates can push gold to $1500 an ounce – but what the long term prospect of the yellow metal?
Tania Sailor
Jun. 24, 2007

The gold bugs are getting happier every day. The economy is facing stagflation. Stagflation is great for the gold investor. The stagnating economy puts political pressure on the Fed to lower short-term rates. But inflation in the economy just pushes gold fundamentally higher. The stagnating economy will also create far higher budget deficit, which will lower the dollar and raise the price of gold.

So gold is a total winner isn’t it? Well before thinking about the gold homerun, let us analyze a few things.

What happens after stagflation? The inflation actually puts more pressure on the economy. The economy stagnates further and finally plunges into recession. With such high budget and trade deficit, if the long-term bond yields cross the 10% level, it will plunge the economy into depression. Now what happens if economy stays depressed for more than a quarter? Deflation starts. The inflation changes very fast into deflation.

So, if stagflation continues and get deeper, it will transform into depression accompanied by deflation. It happened in Japan. The Japanese economy, since the late eighties, stagnated and collapsed into deflation under heavy debt. That shows depression is not needed for deflation to take over the economy. If the world economies start experiencing deflation, the gold will eventually collapse.

Gold for now is bullish and may rise very high. But eventually as deflation takes over the economy gold will be trading far below it is trading today. There is one catch though. That wild card is dollar. If dollar collapse like pesos, gold will higher. If dollar holds under deflation, gold will collapse below $300 an ounce.

Negotiate with your bank and lower your mortgage rates, negotiate and lower your property tax – falling real estate presents some advantage
Mike Moran
Try and convince your tax assessor to lower the tax on your property. If needed get your home appraised again. You can eventually take the help of the court for tax appeal.
READ MORE>>

Higher inflation, lower short-term rates can push gold to $1500 an ounce – but what the long term prospect of the yellow metal?
Tania Sailor
So gold is a total winner isn’t it? Well before thinking about the gold homerun, let us analyze a few things.
READ MORE>>

Business confidence weakening manifested by this week’s weak durable goods number
Sam Adelton
The business confidence index is lower. The small businesses that really contribute to growth are reporting trouble. The energy cost is high. The rates are getting higher. The input materials cost double what it used to be three or four years back.
READ MORE>>

Take control of your IRA and Roth IRA – do not let collapsing stock market take your dream retirement from you
Fred Day
What can you do to earn handsome returns for your retirement funds if you decide to say good-bye to stock market? The answer lies in commodity futures market. You can still stock index futures.
READ MORE>>

Lower consumer confidence and sentiment numbers will manifest slowing economy
Peter oberois
The consumers contribute close to 70% of the economic growth. A collapse in the confidence index points to the underlying weakness in the economy. The sentiment index weakness points to the possibility of severe recession in the economy.
READ MORE>>

MORE ARTICLES >>