{"id":59960,"date":"2012-05-18T10:04:14","date_gmt":"2012-05-18T00:04:14","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/05\/18\/the-commodity-price-boom-ahead\/"},"modified":"2012-05-18T10:04:14","modified_gmt":"2012-05-18T00:04:14","slug":"the-commodity-price-boom-ahead","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/05\/18\/the-commodity-price-boom-ahead\/","title":{"rendered":"The Commodity Price Boom Ahead"},"content":{"rendered":"<p>\n\t<strong>Money Slow Down<\/strong><\/p>\n<p>\n\tBy Richard (Rick) Mills of&nbsp;<em>Ahead of the Herd<\/em><\/p>\n<p>\n\t<em>As a general rule, the most successful man in life is the man who has the best information<\/em><\/p>\n<p>\n\tMany have called for very high levels of inflation possibly leading to hyperinflation. Their reasoning is that over printing of the US dollar will cause the dollar to weaken and inflation to set in &ndash; more money chasing the same amount, or less, of goods causes prices to rise. A rise in gold and silver (and commodities prices), would be the result.<\/p>\n<p>\n\tGold and commodities have gone up, substantially -prices reacted to the increase in the monetary base and the corresponding increase in the velocity of money caused by financial innovations such as mortgage-backed securities (<span class=\"scayt-misspell\">MBS<\/span>), <span class=\"scayt-misspell\">collateralized<\/span> debt obligations (<span class=\"scayt-misspell\">CDO<\/span>), derivatives and credit default swaps etc.<\/p>\n<p>\n\tBut the called for massive inflation hasn&rsquo;t yet happened, yes there&rsquo;s been more than a modest rise in the real price of goods (much more then the government measured Consumer Price Index), but treasury yields and home prices are at record lows, jobs have languished and credit has stalled. These are not the conditions one would expect to see in a highly inflationary environment.<\/p>\n<p>\n\tThis brings up two questions:<\/p>\n<ul>\n<li>\n\t\tWe&rsquo;ve not had the much higher inflation called for &ndash; why not?<\/li>\n<li>\n\t\tAre there further gains to be made in the prices of gold and silver (and commodities in general)?<\/li>\n<\/ul>\n<p>\n\t<img decoding=\"async\" alt=\"\" src=\"http:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/1_1_mills1.jpg\" style=\"width: 600px;height: 357px\" \/><\/p>\n<p>\n\tBetween August 11, 2008 and the end of 2011, the monetary base, which only the Fed can produce, almost tripled with a Bernanke Fed injection of $1.7 trillion dollars.<\/p>\n<p>\n\tMost of the money issued by the Bernanke Fed is parked in banks as excess reserves that the banks are not required to hold.<\/p>\n<p>\n\tOn October 6, 2008 the Fed announced it would begin paying interest on the reserve balances of the nation&#039;s banks. The Fed&rsquo;s records show they were paid $2.18 billion interest on these reserves just in 2009.<\/p>\n<p>\n\tThese interest payments are an incentive to hold the cash. At the end of 2011 U.S. banks were holding 88 percent of the monetary base ($1.5 trillion of the $1.7 trillion increase) issued by the Fed since August 2008 as excess reserves they are not required to hold.<\/p>\n<p>\n\tAs long as this money stays parked at the Fed it has no velocity, it&rsquo;s not loaned out, it&rsquo;s not changing hands, it&rsquo;s not being spent, its velocity is zero.<\/p>\n<p>\n\tWhen we talk about the velocity of money, we are speaking of the average frequency a dollar is spent. If nobody is spending money the velocity is zero.<\/p>\n<p>\n\t<img decoding=\"async\" alt=\"\" src=\"http:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/1_1_mills2.jpg\" style=\"width: 600px;height: 361px\" \/><\/p>\n<p>\n\tVelocity, as shown by the above chart, is currently at a record low.<\/p>\n<p>\n\t<strong>Most <\/strong>of the dollars created in the stimulus programs (ie QE&rsquo;s 1 &amp; 2), after the bubbles burst, have never made it into circulation to be spent by small businesses (the largest job creators) or consumers (the driver of the US and world economies), they&#039;re either parked at the Fed or the world&rsquo;s central banks as foreign reserves (many countries hold US dollars in their foreign reserve accounts, China has trillions of US dollars, most of these dollars will never make it into circulation).<\/p>\n<p>\n\tLet&rsquo;s take a look at four charts; the US monetary base, gold&rsquo;s price, money velocity and the US dollar index. You can see that gold has not, and is not, responding to the dollar&rsquo;s strength or weakness as much as it responds to the increase in the US monetary base and money&rsquo;s velocity.<\/p>\n<p>\n\t<img decoding=\"async\" alt=\"\" src=\"http:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/1_1_mills1.jpg\" style=\"width: 600px;height: 357px\" \/><\/p>\n<p>\n\t<img decoding=\"async\" alt=\"\" src=\"http:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/1_1_mills3.jpg\" style=\"width: 600px;height: 361px\" \/><\/p>\n<p>\n\t<img decoding=\"async\" alt=\"\" src=\"http:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/1_1_mills2.jpg\" style=\"width: 600px;height: 361px\" \/><\/p>\n<p>\n\t<img decoding=\"async\" alt=\"\" src=\"http:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/1_1_mills4.jpg\" style=\"width: 600px;height: 274px\" \/><\/p>\n<p>\n\tNow we know why precious metals, and commodity prices, were so strong &ndash; the monetary base was expanding and there was an orgy of money spending fueling expectations of inflation. Currently the monetary base is not expanding, money is not circulating, this is fueling deflationary fears. Add in the multiple fears of a China slowdown, the EU imploding and the US slipping back into recession and we can see why prices are falling.<\/p>\n<p>\n\tThe questions we need to find answers for are:<\/p>\n<ul>\n<li>\n\t\tAre the Fed, and the world&rsquo;s central banks, done with increasing the global monetary base?<\/li>\n<li>\n\t\tHave they given up in their attempts to revive credit and fuel another economic &ldquo;spend your way to riches&rdquo; prosperity bubble?<\/li>\n<li>\n\t\tIs austerity here to stay?<\/li>\n<\/ul>\n<p>\n\t<strong>Consider<\/strong>:<\/p>\n<p>\n\tGoverning parties are suffering major losses in election after election as anti-austerity parties make gains.<\/p>\n<p>\n\tUnless continuously fed with new credit the global financial system will implode, when confronted with this possibility governments always respond in the same way &ndash; by printing more money.<\/p>\n<p>\tThe world&rsquo;s governments have unlimited printing presses.<\/p>\n<p>\tFrance has elected a socialist leader who will demand an end to austerity.<\/p>\n<p>\n\tThe European Central Bank has accepted that growth should take precedence over balanced budgets.<\/p>\n<p>\n\tGerman Chancellor Angela Merkel&rsquo;s CDU party won only 31% of the vote in Scheleswig-Holstein, the party&rsquo;s worst showing in 50 years. Merkel&rsquo;s hard line austerity programs, so unpopular in the rest of Europe, are increasingly being viewed with skepticism at home in Germany.<\/p>\n<p>\n\tGreek voters just delivered a resounding anti-austerity election verdict &#8211; more than 50 per cent of them cast votes for parties opposing public spending cuts.&nbsp;If there&rsquo;s another election in Greece this summer there is a high probability of Greece defaulting and exiting the Euro.<\/p>\n<p>\n\tFed chairman Bernanke has made it clear he&rsquo;ll step in with more easing if necessary.<\/p>\n<p>\n\t<strong>Conclusion<\/strong><\/p>\n<p>\n\tThe resource boom isn&rsquo;t over, someone hit the pause button on the printing presses to take stock, do a review of their attempted fix methods and success achieved to date.<\/p>\n<p>\n\tSingle minded money printing has to be the next stage. Politicians, governments and central banks will abandon the restraints they have been operating under and do whatever they think it will take to pacify voters, save their re-election chances, &ldquo;right&rdquo; their economies and salvage the fiat monetary system. Tax cuts, more and bigger deficits, continued low interest rates into the foreseeable future and aggressive asset purchase programs, steroidal quantitative easing, are all going to achieve previously unimaginable levels.<\/p>\n<p>\n\tThe monetary base will explode, and if the money velocity chart reverses &ndash; if small businesses and consumers actually get their hands on some of this money &#8211; precious metals and commodities prices will soar.<\/p>\n<p>\n\tThe greatest leverage to soaring precious metal and commodity prices has historically been junior resource companies. It is this authors opinion that we are presently being given the greatest buying opportunity of our lifetimes.<\/p>\n<p>\n\tThe whole world is the stage and the drama is set to continue. The greatest show on earth, a couple of charts (monetary base\/money velocity), and a handful of carefully selected junior resource companies, should be on all our radar screens.<\/p>\n<p>\n\tIs the drama, two charts and a couple of juniors on your radar screen?<\/p>\n<p>\n\tIf not, maybe they should be.<\/p>\n<p>\n\tRichard (Rick) Mills<\/p>\n<p>\n\trick@aheadoftheherd.com<\/p>\n<p>\n\t<a href=\"http:\/\/www.aheadoftheherd.com\/\">www.aheadoftheherd.com<\/a><\/p>\n<p>\n\tIf you&#039;re interested in learning more about the junior resource and bio-med sectors please come and visit us at <a href=\"http:\/\/www.aheadoftheherd.com\/\">www.aheadoftheherd.com<\/a>.&nbsp;Site membership is free. No credit card or personal information is asked for.<\/p>\n<p>\n\t&nbsp;***<\/p>\n<p>\n\t<em>Richard&#039;s articles have been published on more than 400 websites including:&nbsp;<\/em><\/p>\n<p>\n\t<em>Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Pinnacledigest, Uranium Miner, Beforeitsnews, SeekingAlpha, MontrealGazette, Casey Research, 24hgold, Vancouver Sun, CBSnews, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold\/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, Financial Sense, Goldseek, Dallasnews, Vantagewire, Resourceclips and the Association of Mining Analysts.<\/em><\/p>\n<p>\n\t<em>***<\/em><\/p>\n<p>\n\t<em>Legal Notice \/ Disclaimer<\/em><\/p>\n<p>\n\t<em>This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.<\/em><\/p>\n<p>\n\t<em>Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.<\/em><\/p>\n<p>\n\t<em>Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.<\/em><\/p>\n<p>\n\t<br \/>\n\t<strong>Technical limitations<\/strong><\/p>\n<p>\n\t<strong><span style=\"font-style: italic\">If you are reading this story through a third party distribution channel and you cannot see charts included<\/span>, <em>we <span>apologise<\/span>, but technical limitations are to blame.<\/em><\/strong><\/p>\n<p>\n\t<em>Find out why FNArena subscribers like the service so much: &quot;<a href=\"http:\/\/www.fnarena.com\/index4.cfm?type=dsp_newsitem&amp;n=29EB960D-9DFF-C00E-7F6B464E5D52E250\">Your Feedback (Thank You)<\/a>&quot; &#8211; Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Ahead of the Herd&#8217;s Rick Mills anticipates another significant round of global monetary stimulus, feeding into the prices of gold and other commodities.<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[23,29,24,22],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59960"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59960"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59960\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59960"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59960"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59960"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}