The Gold Price vs. Inflation Bug

You would commonly refer to the effect of inflation as a rise in prices. But you can also see exactly how inflation affects prices during currency devaluation. Currency devaluation is much harder to quantify, unless you work strictly in terms of gold weights.

This is just not done any longer in the monetary system we have. But that means there's no limit to price appreciation at all. You have to keep this in mind, because even the best advisors will get it wrong since they are looking at the currency as an absolute, fixed value and gold prices as speculative, bar none.

So there really is no guidance at all when it comes to gold prices. The one thing that a gold miner will give you is exposure to the average realized gold price over a certain period. Even there, the market sets that average far below the 40-year inflation-adjusted average.

So gold is still seeking its 40-year inflation adjusted average after all this time. I think we're very near to maintaining this price, but as monetary inflation persists and low interest rates are the norm, currency depreciation will continue unabated.

According to StatsCan, the Bank Of Canada increases the money supply 12% yoy. This is a staggering increase in monetary inflation. On overage, the U.S. Treasury prints 11% more money Yoy. But people see currency values as inviolate, and gold prices as speculative excess.

It looks for now that the 40-year inflation adjusted average gold price will be @ $1800/oz. level.

supersize: http://www.flickr.com/photos/11747277@N07/6865024176/sizes/l/in/photostream/

stockcharts.com

-F6