May 16, 2013 - Update on Gold and Economy

The price of gold weakened this week.  As of this writing, it is once again below the $1,400 per ounce mark.  Meanwhile, the 10-year yield rose this week, but did retreat back down earlier today.

When gold took a big hit back in mid-April, I said that it would either recover and go on to eventual new highs or else we were going to see a recession.  While nothing in economic life is a certainty, I am standing by that prediction because of the massive malinvestment created by the Fed and the huge government spending.

I don't think the slight retreat in the gold price is any indicator at this point.  There is no definitive mark signaling whether we will have an artificial boom or a recession.  The gold price is leaning a little more towards recession.  Stocks are leaning towards a boom, although we know that can change very quickly.  The interest rates are not giving a signal one way or another.  Rates have been bouncing around a little, but they have still remained low.

While I maintain that you should keep a majority of your investments in a setup like the permanent portfolio as advocated by Harry Browne, I think your speculative portion will really depend on which way the overall economy goes.  A continuation of an artificial boom (due to Fed money creation) will mean you want to own gold and maybe even some stocks.  A recession/ depression will mean you want to be short stocks and have a strong cash position.

Outside of your investments, it is important to know that the average American is going to experience a decline in living standards, at least in the short run.  We may see certain things improve such as technology with electronics, but we will see tougher times ahead in terms of employment, wages, and meeting everyday expenses.

It doesn't really matter whether we have a recession now or later.  Most Americans are hurting now and they will continue to feel some pain until the government is forced to cut spending.  It doesn't matter if we see roaring price inflation or we see reduced real wages.  American living standards are likely to go down in the near term.

The best we can do is to try to do as well as we can relative to everyone else.  And let's hope we can convince enough people that we need far less government in our lives, which is the prerequisite for a true booming economy.