Inflation and the Rush to Precious Metals

I have been banging the drum so hard for precious metals that readers must know the drill by now. Government spending is out of control. We have a big-spending Congress in Washington that can’t say no to anything (except the token defense cut, or taking away school vouchers from inner-city kids in the District of Columbia). It’s been going on for way too many years, under both previous and current party management.

Everybody who’s anybody in this country, it seems, gets a permanent, pet government program, if not a large bailout. (Huh? You didn’t get your program or bailout?) How long can it last? I think we’re about to find out.

As Bernie Madoff might say, “Bailout, schmailout.” Still, the axis of overspending leads to inflation. It’s the 1970s redux. And inflation will soon rear its head and roar so loud that even the wizards of Washington will have to admit the obvious.

Actually, our betters in Washington are waking up to the issue of inflation and the decline of the dollar. Just yesterday, I received an inquiry asking if I want to appear on a nationally syndicated show that originates from Washington, D.C. (well, Alexandria, Va., to be exact). The audience is Washington people – you know the type – and their intellectual and spiritual kin in “blue spots” across the country.

Here’s the exact inquiry:

“We’re doing a story on hoarding behavior and I am looking for people who have taken some (or all) of their savings out of traditional investments and are now storing money as cash or in the form of physical gold or some other precious metal in a safe or secret place. I am having trouble finding anyone like this. Do any of you know of someone who fits this description, who might be willing to talk to me about it? I am looking for someone in Boston; Washington, D.C.; New York; or maybe Chicago. If anyone has any leads, please let me know!”

Oh, man! That’s rich! Verbatim! Honest to God, I have not edited this inquiry by EVEN ONE WORD! These people are clueless!

The producer wants to interview gold bugs for the show. In an anthropological fashion that would do Margaret Mead proud, the subject of the story is “hoarding behavior.” But the poor producer says, “I am having trouble finding anyone like this.” (Like looking for a registered Republican at the Harvard Faculty Club?) And how about that request to find somebody in Boston, Washington, New York or Chicago? If you’re from, say, the silver mining town of Wallace, Idaho, you need not apply.

Here was my reply: “People who’ve taken their savings out to buy gold and store it or hide it probably don’t want to brag about it on NPR.”

Remember that line from the movie Apollo 13? “Houston, we have a problem.”

Wow. Do we have a problem in this country, or WHAT? It’s WORSE than Apollo 13. We should be so lucky as to be in a small capsule in the cold of space heading away from Earth toward the moon with almost no oxygen or electrical power. Instead, we’re watching the national currency declining and dying right before our eyes. And the opinion makers of the nation don’t know anybody who owns gold. Amazing!

Well, the producer could always go find somebody in Dubai. Because from that distant desert kingdom comes word that the Dubai Multi Commodities Centre (DMCC) has finished building a state-of-the-art precious metals vault, with world-class tracking and security systems. Think Fort Knox, but in the desert and without the trees and pretty landscaping we see in the hills of Kentucky.

You want “hoarding behavior”? The new vault will become the home for the exchange-traded fund (ETF) of Dubai Gold Securities. Also, “It’s a natural home for the central banks in the region to store their gold in Dubai, rather than in London, where they have typically held their gold,” said a Dubai-based gold dealer INTL Commodities DMCC’s CEO Jeffrey Rhodes. Yep. “Natural home.” (Margaret Mead, call your office!)

A DMCC official stated that the new vault will be used to store precious metals associated with precious metal-based ETFs that are on the drawing boards and scheduled for launch later in 2009. This can only add to worldwide demand for gold and silver, especially from the traditionally gold-friendly Middle East.

OK, so here’s the bottom line. When the American people realize that the dollar is in for another round of inflation, they’re going to look for a way out. When people envision the future decline in their purchasing power, we’ll see a rush for the monetary exits. It’ll be the “Gold Panic” of 2009, or 2010 or 2011… Whichever year gets the naming rights.

When the reality sinks in, people will flock in droves to physical precious metals (yeah, try to get some!), as well as mining shares. I’m old enough to remember the last time it happened, in the 1970s and early 1980s. And I’ve studied enough history to know it won’t be pretty.

So beat the gold rush! Hoard now!

Until next we meet,

Byron W. King
for The Daily Reckoning