Gold hits new record, oil and silver surge

Gold hit an all-time record while silver and oil both touched multi-year highs on Monday, supported by the Federal Reserve's move to spur the U.S. economy and by growing worries about inflation.

A rally in the dollar trimmed early gains, but commodities still found support across the board as investors considered the outlook for the currency as the United States pumps $600 billion into its economy and money markets.

"Investors are looking for real assets, and almost all commodities are benefiting from that as a class," said Carsten Fritsch, a commodities analyst at Commerzbank. "Chinese growth, inflation and the declining dollar are all supportive."

Gold, a traditional hedge against inflation, hit a record of $1,398.35 an ounce before slipping back to around $1,391.00 by 1130 GMT. Silver tracked gold to strike a fresh 30-year peak at $26.98 an ounce before easing back to around $26.70.

Gold found unexpected support from World Bank president Robert Zoellick, who suggested in the Financial Times that leading economies should consider readopting a modified gold standard to guide currency movements.

"I think for today, we may actually see gold hit above $1,400," said Ong Yi Ling, an investment analyst at Phillip Futures in Singapore. "This is the level that I think a lot of investors should be watching to see if some shorter-term players may choose to take profits."

U.S. crude oil for December hit 25-month highs at $87.49 per barrel before slipping back to around $86.45, down 40 cents, at 1130 GMT as the dollar rallied.

Yeah, according to the government $812.04 cents now buys what $100. bought in 1954 when I was ten years old. Now it should follow that since my father the carpenter was paid about $100. every TWO weeks back then and somehow supported all of us then a man should be able to support a wife and family now if he is paid $812.04 every two weeks, right? Truth is it would take a financial genius to support them on $812.04 for ONE week right here in the same area. The CPI figures are cooked to pieces. Back then our electric bill never went over eight dollars a month, usually less than seven. You can’t even have a meter for that now! If you use no electricity at all the minimum monthly bill is double what we used to pay. I am sixty six years old and I can easily carry a hundred dollars worth of groceries into the house unassisted in one trip. In 1954 you couldn’t put a hundred dollars worth in a pickup truck bed unless you had wooden side extensions. It’s all a lot of bullcrap. We used to grow cantaloupes and sell them wholesale by the pickup truck load for six or seven cents each, top price we ever got was eleven cents for cantaloupes bigger than some supermarket watermelons are now. That would barely pay for the gas to haul them now. If our government tells the truth about anything it is purely by accident.

We are officially in an inflation trade melt-up. Everything that is an inflation hedge has exploded since late August. Gold is up 15%. Silver is up 48% (courtesy of the manipulators finally getting taken to court). Agricultural commodities are up 25%. Oil is up 20%. Against this backdrop, stocks' 17% rally becomes slightly less insane. That's right, stocks are up 17% since late August. What happened in late August?

The Fed announced QE lite and promised QE 2 was coming. Almost to the day of this announcement, the US Dollar rolled over and dropped some 8% (it's down nearly 15% since June).

In plain terms, we are entering an environment in which a US Dollar collapse has fueled inflation trade mania. By launching additional QE measures at a time other central banks have renounced additional easing measures (the ECB and Bank of England) or are actively raising interest rates (China and Australia), Fed Chairman Ben Bernanke has made it clear he is willing to trash the US currency.

Consequently, money is pulling out of Dollars and flowing into hard assets and other inflation hedges.

The below chart plots the US Dollar (green) against Gold (yellow), stocks (black), and commodities in general (blue). This picture, details in stark terms the overall trend for markets today.

The most concerning thing is that there doesn't appear to be any sign of this stopping. Emerging markets, which have lead the S&P 500 ever since the Financial Crisis began (during this recent rally, they bottomed in May while the S&P 500 didn't bottom until July) are not only back to pre-Crisis levels but are a mere 8% off from their 2007 highs. It's almost as though 2008 never happened.

Part of this is better fundamentals, but a lot of it is money flowing out of US equities and piling abroad. This is causing many emerging markets like China and Brazil to impose capital controls and other efforts meant to slow the inflows of funds.

Will this infaltion trade trend continue? It’s very hard to tell. I cannot believe China is going to let Bernanke get away with QE 2. However, until China issues a response in the form of policy, we’ll have to go by the US Dollar for signs of what’s to come.

In the meantime, the inflation trades dominates everything. So the best place for money is in commodities, especially precious metals (make sure it’s bullion, NOT etfs) and agricultural commodities, as well as emerging markets.

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