Inflation Concerns Return to the Market

Barrick Gold finished up today 9.48%, a beautiful move. COMEX gold finished at 4.44% to close at $798 an ounce. Meanwhile, here are a couple of interesting headlines today: Fed Weights Debt Sales of Its Own and U.S. Treasuries Fall as Demand Drops at Three-Year Note Auction.  Both stories provide very tellings signs of the time. 

The first story is that the Federal Reserve wants to be able to issue bonds- a bizarre notion for an entity that can create as much money as it wants at any time. The reason a money creation entity such as the Federal Reserve would want to start borrowing money is because it’s worried that if it continues to run the printing presses to fund of its bailout programs then it would create excessive inflation. The later story says that yields are starting to creep into longer term US debt obligations because concern is developing that, as the article says, “the government will flood the market with securities to pay for a financial rescue.”

Put the pieces together, and what happened today is that the market started to react to inflationary expectations based on concerns about all of these bailouts and stimulus packages. Those inflationary expectations are causing bond yields as well as the price of gold. Hence, for today at least, inflation is replacing deflation as the investor watch word of the day. Gold, the traditional inflation haven, should perform very well if this investor mindset continues. For those who had the fortitude to buy into companies such as Barrick Gold close to the bottom (as I was fortunate enough to do) we have seen a 50% return (or more) in roughly six weeks. 

I have some cash to put to work in the market right now and Barrick Gold is a company that I believe will continue to do quite well. I took some profits today because the gold market should remain volatile and so it should bounce around quite a bit in both directions. Consequentially, I’d like for it to decline back to $25 a share or so before I buy more. Meanwhile, the profits I took will allow me to go Christmas shopping and pay off some debts. 

Incidentally, I’m working with some investment professionals to help investors protect themselves from the falling dollar. Interested parties are encouraged to contact me.

Till next time. Keep your powder dry.

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