Gold Today:Reflation of Asset Prices Remains

Gold Today:Reflation of Asset Prices Remains

Reflation of asset prices thanks to trillions of dollars created by Ben Bernanke's Fed and other central banks around the world is continuing to lead to higher commodities prices around the world. But there is scant evidence that it is leading to anysustainable economic growthin the world, even in China.

Just as it was true when similar policies were orchestrated in the 1930s, unemployment in the U.S. remains high because expanding liquidity in the banking system does not mean it gets out into the economy. But what Bernanke's printing presses are doing is providing Wall Street speculators with fuel to drive stocks and commodities higher. And that in turn is pushing up the actual cost of livingnot the phony CPI calculated by our government but the real cost of fuel, food, healthcare, education and almost anything you care to mention with the exception perhaps of housing.

As of Wednesday this week, our IDW was at 143.15, which is not all that far now from its all time high of 147.99 on May 16, 2008. This is proving to be a great time for Wall Street but it is serving to further impoverish Main Street as wages lag in the midst of a higher cost of staying alive as measured by the Rogers Raw Materials Fund chart shown below. Actually, I was a bit surprised to see how much lower the Rogers Raw Materials Fund is from its pre-Lehman Brothers default in 2008. I thought it would look more like my IDW. In fact, the difference between the post-Lehman Brothers advance in the Rogers Fund and my IDW highlights how much of the asset recovery prices have occurred in stocks (which are in my IDW) rather than in commodities.

What of course I do want to point out is how much better real money namely goldhas performed since the Lehman Brothers default. The chart above to your right really demonstrates that point well. In August 2008, an ounce of gold would have purchased about 15% of the Rogers Raw Materials fund. Following the crash, an ounce of gold's purchasing power peaked at 44% in March 2009. It fell back to 30% when "the good times" returned but has since risen to a high of 42% when the Greek crisis first arose. It is now at approximately 40% and threatens to rise significantly further with European sovereign debt problems threatening to bankrupt the Euro.

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