from loantech ....
cogent argument as to why HIGH INTEREST RATES support
HIGHER COMMODITY PRICES ....
This guys says different. I go with what he says:
History - The Great Teacher!
Puru Saxena
18 July, 2006
THE BIG PICTURE - We are now living in an inflationary war cycle. Over the coming decade, I expect massive inflation (money-supply growth) and worsening geo-political conflicts. During such a hostile environment, commodities (especially gold and silver) are likely to outperform every other asset-class.
At present, there is a lot of noise about a commodities "bubble". The majority of "experts" are convinced that commodity prices have risen too much and they'll collapse. On the other hand, stocks and bonds are being touted as bargains; the foolproof road to riches and financial freedom! These days, the mainstream media is awash with analysts who are claiming that commodities will suffer due to rising interest-rates. Frankly, I find their argument totally absurd.
History has shown that commodity prices are positively correlated to the direction of interest-rates. On the contrary, financial assets such as stocks and bonds are negatively correlated to interest-rates!
Figure 1 shows the long-term trend in US interest-rates and its effect on various asset-classes. During the 1970's, interest-rates soared and this period coincided with a gigantic bull-market in commodities. Despite sky-high interest-rates, all the commodities went up several-fold! It is interesting to note that the 1970's saw a vicious bear-market in stocks and bonds. Back then, the US underwent a huge recession and Britain had to be bailed out by the IMF. Interest-rates peaked in the early 1980's and this coincided with the end of the commodities boom. In the following 2 decades, both interest-rates and commodities declined whilst stocks and bonds witnessed a huge boom.
Figure 1: Impact of interest-rates on various assets
Figure 1 leaves no doubt that the previous commodities boom took place amidst rising interest-rates and a severe recession. So, next time when the "experts" claim that commodities are about to collapse because of rising interest-rates and a slowing economy, perhaps you can direct them to a good history teacher!
321gold.com
POSTED BY LT here:
Message 22650782
note to myself:
the argument above is CONTRARY to the argument that I agreed
with which is outlined here -
SD
You wrote:
>>>>>>>>>>>>>>>
The best environment for gold price should be high money supply and low interest rates (low real interest rates).
>>>>>>>>>>>>>>>
I wrote:
>>>>>>>>>>>>>>>
Increasing higher long term interest rates = increasingly
higher long term gold prices ....
>>>>>>>>>>>>>>>
One of us is foolish and it ain't you.
I have read the following many times and it is the best
work I have ever found on the subject.
As to my post - lets call it a brain-fart. In any event,
you will find that this work almost to a T supports
your post:
It is a long piece and here are some highlights:
By John P. Hussman, Ph.D.
Excerpted from the October 1999 issue of Hussman Econometrics
All rights reserved and actively enforced.
>>>>>>>>>>>>>>>>>>>
Hands down, the main factor that moves the dollar is not the action of inflation itself, but the action of long-term real interest rates (long term interest rates minus long term inflation expectations, which can be very roughly proxied by the current inflation rate, since inflation is "serially correlated").
When long-term real interest rates are trending down (relative to long-term real interest rates in other countries), the dollar typically declines.
When long-term real interest rates are trending up, the dollar typically rallies.
>>>>>>>>>>>>>>>>>>>
>>>>>>>>>>>>>>>>>>>
So if we're looking for a rally in gold, we're really looking for
1) World inflation, particularly in the U.S., and
2) falling long term Treasury bond yields.
This combination is most frequently seen early in a recession.
Remember, unless demand is actually falling, slower economic growth is correlated with faster inflation.
That means that inflation is generally rising at the time the economy enters a recession. At the same time, it turns out that long term interest rates stagnate or fall as the economy enters a recession.
The net result is that as the economy softens, long-term real interest rates tend to decline, and the value of the dollar typically plunges.
That's the time you want to own gold.
>>>>>>>>>>>>>>>>>>>
hussmanfunds.com
Ah - I have to go to the blackboard now and write 1000 times
I shall not post unless I am thinking.
regards,
John McCarthy |
