Gold Prices Reveal Truth About U.S. Economy

Wall Street, the Fed and the oval office are determined to convince you that the U.S. economy is on the upswing.

After all, the economy grew at a 4% annualized rate in the second quarter.  And jobs growth continues to exceed 200,000 new jobs monthly — assuming, of course, that you buy into the manipulations used to calculate the jobs picture and disregard the inconvenient truth that our economy is gaining more low-wage part-time jobs and losing more higher-wage full-time jobs.

So, apparently, life outside my front door is hunky-dory, peachy-keen and all-around nifty — at least that’s what one of those really smart Wall Street guys on Bloomberg radio told me to believe as I was driving into work on Wednesday morning.

Funny that it doesn’t feel hunky-dory, peachy-keen and all-around nifty.

And funny that the gold market seems to feel as I do — that behind the veneer of health lies a cancer that continues to eat away at our insides.

Just moments after that really smart Wall Street guy said how great the U.S. economy is these days, the radio host parenthetically announced that gold was trading in the range of $1,295 per ounce. That says way more about the economy than GDP growth and manipulated job-growth numbers.

Ever since the U.S. currency went off the gold standard in the earlier ‘70s, leading the commodity to fluctuate in opposition to however well the dollar was doing, the price of gold has served as a suitable measurement of the U.S. economy’s pulse.

That said, think about the relatively stable price of gold, and think about where our economy has come from and where it’s going.

We pulled out of the greatest recession/depression/economic screw-up of the last 80 years, and instead of creating real jobs that support a real economy, we’re creating poverty-wage service-sector jobs in an economy supported by excessive government spending and extreme monetary manipulation by the Federal Reserve.

Now, we’re told our economy is “firing on all cylinders,” as the really smart Wall Street guy declared. We also have the Fed just months away from ending its Quantitative Easing program and beginning a new regime of interest-rate increases. In a textbook world, that is not an environment conducive to higher gold prices. In fact, in classical economic terms, that’s a world in which you would expect gold prices to decline.

After all, gold offers no dividend and no income. Instead it imposes a cost — the lost income you could otherwise earn by investing your money in a risk-free certificate of deposit or government bonds.

But we’re sitting at interest rates barely above 0%, so that “cost of carry” is irrelevant because you’re not getting a return anyway. When rates rise, however, the cost suddenly becomes very relevant. And here’s the rub: Wall Street is a forward-looking prognostication machine. It’s forever peering around the corner, guessing at what’s heading toward us. Given that the Fed has been crystalline in telling us to expect interest rates to start heading higher soon, gold prices should already be heading lower in anticipation of an event that we know with 100% certainty.

And yet gold hasn’t budged. For the better part of two years now it has been bouncing around in a fairly narrow range between $1,200 to the south and $1,400 to the north. And since Fed Chair Janet Yellen took the helm and began telling the market explicitly that rate hikes are coming sooner than might be expected, gold has actually rallied higher.

Makes me wonder just how hunky-dory, peachy-keen and all-around nifty my American economy really is…

Gold Sees Past the Lies

Those of us who own gold are often called “gold bugs” in a derisive way. But owning gold is not about conspiracy theories or holding true to beliefs that mainstream thinkers consider fringe.

Owning gold today is about insurance.

Despite all the good news in the economy — and I’m calling it “good” just to play nice with the slower kids who really think that — the action in the gold market is a giant warning sign. It’s telling you that beneath the surface, hunky-dory is unsatisfactory. Peachy-keen is second-rate. All-around nifty is downright mediocre.

We have 146 million people in the American workforce … and 157 million receiving welfare benefits.

We have a population that owns, on average, personal savings of about $6,300 per family … yet every citizen owes more than $8,000 in interest payments on our national debt. We have, on average, $351,000 in assets per citizen … but we have more than $1 million in liabilities per person.

The official unemployment rate — meaning the “big lie” — is in the 6% range. The unofficial unemployment rate — meaning the truth as once calculated by our very own government — is more than double that.

Personal incomes are shrinking, not rising.

The middle class is, statistically, smaller today than it was in the 1970s, or so says recent academic research.

Government spending is one-quarter of the economy today; it was less than one-fifth when Clinton left office.

The monetary base — meaning the amount of dollars in the economy — is 24% of GDP. In 2000, it was just 6%. That’s fuel for an inflationary surge. Oh, and we’re already seeing inflation heat up. Reported inflation — again, the lie — is running in the 2% range … but real inflation — as the government used to track it before manipulating data so boldly became a government necessity/policy — is running at between 6% and 10%, depending on which government calculation you care to use.

The gold market sees all of this.

Still the Best Lifestyle Insurance

Contrary to the rumors, gold is not dead. It’s not in hibernation. Its day in the sun is far from over. In fact, its day in the sun hasn’t even arrived yet, despite the run toward $2,000 a couple years ago.

It is calmly watching the events of the internally cancerous American economy unfold. It refuses to collapse because it knows there is no hunky-dory, peachy-keen or all-around nifty anywhere to be found in America today. There is, instead, obfuscation, subterfuge and happy-talk designed to manipulate our perceptions. There are very real worries that the U.S. dollar is built atop a castle of sand — and that the rogue waves no one wants to predict are, right now, cruising toward our shoreline, possibly from unexpected directions.

Gold today remains a relatively cheap insurance policy against the risks that still exist in an economy that’s not all that some very smart Wall Street guys tell us it is.

Until gold truly cracks, I will continue to be a buyer and a holder of gold bullion, collectible gold coins and large and small gold-mining stocks.

And what, you should be asking yourself, defines “until gold truly cracks?”

Until it collapses below about $900 on definitive proof that the U.S. economy is a pillar of strength and the dollar a bastion of fiscal rectitude.

I don’t see that day anywhere on the horizon.

I just see rogue waves approaching our shoreline.

For that reason, I own gold.

Do you?

Until next time, stay Sovereign …

Jeff D. Opdyke
Editor, Profit Seeker

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