This is the tipping point.
When Malcolm Gladwell coined the phrase, the author was not writing about gold. He was writing about the point when an epidemic, good or bad, goes into hyperdrive.
“Winston tastes good … Where’s the beef? … AU come onto the cloud.” The pitch, once hitting the tipping point, is viral.
As the rest of the planet wraps its head around central bankers’ zero-directive, as in zero interest rates and a blast of balance sheet ballast to keep currencies in spending hands, we at Ticker Trax By Thom Calandra™ and ThomWatch are searching for the next big beneficiaries.
On American television Wednesday, I will get a brief chance to explain why $2,500 gold, even $3,000 gold – an even $100 per gram – will be one result of the chasm bankers must negotiate between plunging consumer prices and the printing of literally tons of currency rolls at Federal Reserve Mints across North America.
Call the reasons for a tipping point in the gold (and silver and platinum) price all of these: counter-party risk, or “all available tools,” or printing press economics. I have heard gold investors reference “fiat currency.” I discussed earlier this month the phenom of “quantitative easing” – the mammoth growth of central bank reserves in a nation’s monetary base. See Quant Easing A Boost For Gold in ThomWatch.
Gladwell, the popular author, describes epidemics such as the spread of viruses, or the runaway success of a dying brand Hush Puppies, as that moment when a trend reverses in force. The reverse is accompanied almost always by the irrefutable mojo, or logic, or momentum, of the situation, and that one extra person or idea (or lost soul in the case of physical viruses) tipping the balance.
It all starts somewhere: that one tres chic East Village kid in the mid-1990s who loved the look of those forlorn Hush Puppies stranded on a thrift store shelf. That one respected investor who buys a load of Internet stocks in the late 1990s.
Our logic/mojo in subscribers’ Ticker Trax By Thom Calandra™ and in this space is well documented.
Gold is almost surely on its way to an inflation-adjusted high, which is approximately $2,500 (based on January 1980 high of $870 an ounce), depending on whose inflation figures are used.
While the inflation that eventually will accompany the $2 trillion manufacturing of American currency this summer and autumn will help gold in traditional economic terms, I believe the best one-word, tipping point phrase for the looming precious metals phenomenon is still counter-party risk.
Here is a primer from former economist, author and GoldMoney.com owner James Turk on why 2009 will be different than 1932. I chatted with him via an electronic mail exchange today (Wednesday). My question to him: How can gold rise if the American dollar (and other currencies) stay flat or “dry up” in a rapid and severe deflating of economies and consumer prices?
“Dollars became scarce in the depths of the Great Depression for one reason. The gold standard then in place restricted the number of dollars that could be created by the Federal Reserve. Therefore, as people sought gold to avoid the risk of bank failures, they redeemed dollars for gold, which forced a contraction in the quantity of dollars in circulation,” Mr. Turk tells me.
Deflation was the result. “The purchasing power of both gold and the dollar rose, assuming you had the good fortune to hold dollar cash or to have your dollars on deposit in a bank that did not fail. Gold is a safe-haven because it does not have the counterparty risk that comes with holding dollars,” Mr. Turk notes.
Our tracking of the manufacture of paper currency rolls at U.S. Mints, defined by the St. Louis Adjusted Monetary Base, concurs with the newspaper coverage today: The Federal Reserve will use any and all means to sidestep a catastrophic deflation of prices and “drying up” of currency.
“Today there is no constraint on the quantity of dollars that can be created, and the Federal Reserve announced yesterday that it will ‘employ all available tools’ to flood the system with dollars in the hope that low interest rates and easy money will jump-start a moribund economy,” James Turk says. See James Turk’s commentary.
Currencies, starting with the dollar, eventually will suffer from the ballast blasting that always comes with additional currency flooding a nation and a planet. Yet the purchasing power of gold can and will rise, albeit some of its heft punctured by those inflationary dollars.
For more, please see Ticker Trax By Thom Calandra™. Also, see the discussion of metals’ backward spin in ThomWatch.
I shall be appearing Wednesday afternoon on Fox Business News in North America to chat a bit more about gold.
That is it for now. The third, secured issue of Ticker Trax By Thom Calandra™ isnow available to paying subscribers. For those sitting on the fence, please take a look at the Ticker Trax™ discussion group on Stockhouse.
On The Ticker Trax™
Ticker Trax By Thom Calandra™explores planet Earth for those few stakes that offer the prospect of excellent, in some cases cosmic, returns. It is for those who are entirely at ease with stratospheric levels of risk. (Please see www.TickerTrax for charter sign-up.) Ticker Trax is for those who make select, high-octane investments and honor those stakes with on-spot research, patience and due diligence.
Please see inaugural sample issue of Ticker Trax™.
HOLDINGS: Thom’s cosmos of holdings is listed for free Stockhouse members on www.Stockhouse.com under the “portfolio setting” for user TCALANDRA. He and his family also own recently minted gold coins. Thom is a long-term believer in bullion and platinum. For more ThomWatch, please click here.
THOM’S STORY: Thom Calandra helped his audience find value in a quagmire of investment choices. He also settled a valid complaint with the U.S. Securities & Exchange Commission in 2005. Thom co-founded CBS MarketWatch, MarketWatch.com and FT MarketWatch in Europe. As the voice of Thom Calandra's StockWatch and The Calandra Report, Thom fancied $300-ounce gold before that metal became an investment rage. Thom visited bioscience companies, metals mines and scores of thin-crust pie joints across the planet in a search for profit, fashion and pizze de trippa gorgonzola. Thom's novel PABLO BY NUMBERS was completed in summer 2008.
