Heading towards next month’s election, gold has given the Democrats a clear vote of no confidence. Despite the excitement and even euphoria that Obamamania created two years ago; the Midas metal — which abides no politics and holds no favorite — is showing two thumbs down on re-electing a Democrat majority.
The day before President Barack Obama won the election — on Nov. 3, 2008 — gold was trading at $729 per ounce. Today gold is trading around $1,350 per ounce. That is a whopping 85 percent gain in less than 24 months.
Only one other President has done so much to help gold and to hurt the nation. Jimmy Carter was elected on Nov. 2, 1976. On that day gold traded at $122.50 per ounce. Twenty-three months later bullion was at $215 per ounce. That was a 75 percent increase in the Midas metal; less than what Obama has accomplished. Who says President Obama isn’t good at anything?
History Says Bullion Will Continue To Boil
If you think that the Obama Gold Bull is becoming a bubble consider this: The Carter Great Gold Bull just kept on going. By the time it hit its all-time high in 1980, bullion was trading for $850 per ounce. That was four times higher than what gold was after Carter’s first two years in office. Even if Obama holds on for just one term and gold follows a path similar to the Carter Presidency, bullion could top $5,000 per ounce.
But Obama’s influence can be felt well beyond the gold market. The Christmas before Obama was sworn in crude oil was selling for less than $38 per barrel. Since then oil prices have more than doubled to $82 per barrel.
While commodity prices keep rising the dollar keeps on falling. Since summer the U.S. dollar index (a measurement of the strength of the dollar against a basket of other key currencies) has fallen off a cliff — dropping from an index reading of 89 to just 77.
Regardless of what economic propaganda Washington spews, we all know that the basic cost of living is higher now than it was two years ago. Gasoline costs more, bread costs more; even a cup of coffee costs more. And oh yes, there are fewer jobs.
There are 14 million unemployed and underemployed workers, or 17.7 percent of America’s total population. Each month millions of middle class Americans see their dollars buying them less while millions more keep searching for work. It is a building catastrophe and is leading towards economic stagflation.
Stagflation is the worst of both worlds. It is a stagnant economy and currency inflation at the same time. It is going to only get worse. Consider that the economy only grew 1.7 percent in the second quarter of this year, not enough growth to improve the economy.
Economists argue that we need 2.5 percent annual growth in the gross domestic product to prevent our already high unemployment rate from rising. That means we need to add more than 100,000 jobs per month to keep our unemployment rate from rising. Yet we created only 64,000 private sector jobs in September.
Meanwhile, unemployment has been at 9.5 percent or higher for the past 14 months. That is already a month longer than our last severe recession in 1982-1983, and no turnaround is in sight.
Last week Chicago Now said that President Obama’s stimulus package is deeply flawed: “It continues to increase our government debt at record levels. The bailout of our financial institutions has helped the banks, yet they are hesitant to loan money to consumers and businesses, which has compounded the chance of a smooth economic recovery. The banks are using our tax money while hoarding cash and our federal government has not instructed them to make loans.”
If the election doesn’t change business as usual by the President and Congress, the result will be even greater deficit spending; something that will trigger a dollar catastrophe.
According to a story in Benzinga.com last week, 2010 bank reserves are incredibly high — above $1 trillion. That is more than 23 times the $44.6 billion in bank reserves that were held at the end of August, 2008.
All this money could turn into an inflationary tsunami in quick order because the Federal Reserve could use these bank reserves to buy more Treasury securities which will allow the Obama administration to continue to create debts that are beyond the nation’s capacity to repay.
The price of gold is already flashing this sign but there hasn’t been wholesale liquidation of greenbacks… at least not yet.
What you need to know is that it could happen even if the Republican Party pries away seats from the Democrats next month. After all, the instrument of all this destruction will still be sitting in the White House for at least another two more years.
According to Benzinga.com, “With the Federal Reserve and Treasury/President/Congress doing these things, historic monetary instability is the prompt, unsurprising result. The dollar’s value is dropping to all-time lows as proved by the gold price rocketing past $1,350/oz, up 386 percent since achieving equilibrium value of $350/oz in 2003. This means the Fed has devalued the dollar about 75 percent in the past seven years, an average annual monetary inflation rate of 10.7 percent.”
The Rule of 72 tells us that if this inflation rate stays true, that dollar in your pocket will be worth 50 cents in just over six years (hopefully not, but possibly when Obama exits the White House for good).
Even if Obama is defeated in two years he has plenty of time to wreak havoc on the economy and the dollar. Again, let’s consider Carter.
After the Democrats lost seats in the 1978 midterms Carter stuck to his liberal guns. The nation was just falling into the grips of sky-high inflation, rising interest rates and surging unemployment. But over the next two years the economic crisis got much worse. It was very bad for the nation but high times for gold.
I see the same situation today. Whether or not gold will reach $5,000 per ounce I don’t know. I tend to think not because there is also a chance for a stunning deflation if America’s creditors like China get tired of the Federal government’s runaway spending. Still, gold is very strong and it has legs to move much higher in short order.
Action To Take
We only have one vote. But we can protect ourselves and our families from the stupidity that is rampant in Washington. I urge you to sell all bond instruments and use the funds to buy bullion, either in physical form or blue-chip gold mining stocks.
Yours for real wealth and good health,
Myers’ Energy and Gold Report