Global Inflationism: It's Not All About Gold

Many have argued that gold is in a bubble.

Yet, given the bigger picture, gold's recent spike pales in comparison to other commodities.
According to Bespoke Invest, ``While gold is currently grabbing the headlines, it's actually up the least out of the seven major commodities that are in the black this year. As shown, Copper is up the most with a gain of 126.7%. Orange juice is up the second most with a gain of 83.3%, while oil, silver, and platinum are all up more than 50%. Coffee and gold are both up about 30%. Three commodities are down in price in 2009 -- wheat (-20.27%), corn (-17%), and natural gas (-11.6%)."

However while momentum appears to have fizzled out for gold, the other precious metals and energy commodities, according anew to Bespoke, ``the breakfast drink commodities -- coffee and orange juice -- are both in strong uptrends and are trading right at overbought territory at the moment." For us, while we expect commodities to generally benefit from the loss of purchasing power of paper money or rising inflation, the rate of advances are likely to be divergent.

However, if indeed the US dollar system is suffering from what we deem as the initial symptoms of "demonetization", precious metals are likely to be the prime beneficiaries or 'leaders', from which should spillover to the general commodities sphere.

As Ludwig von Mises explained,

``The divorce of a money, which is proving increasingly useless, from trade begins when it starts coming out of hoarding. If people want marketable goods available to meet unanticipated future needs, they start to accumulate other moneys, for instance, metallic (gold and silver) moneys, foreign notes, and occasionally also domestic notes which are valued more highly because their quantity cannot be increased by the government, such as the Romanov ruble of Russia or the "blue" money of Communist Hungary. Then too, for the same purpose, people begin to acquire metal bars, precious stones and pearls, even pictures, other art objects and postage stamps. An additional step in displacing a no-longer-useful money is the shift to making credit transactions in foreign currencies or metallic commodity money which, for all practical purposes, means only gold." (bold highlights mine)

Put differently, gold's rise while symptomatic of a monetary disorder hasn't reached the level where rampant demonetization is taking hold yet.

Albeit, the symptoms can hardly be ignored as seen from the chart above from goldmoney.com where gold is even outperforming against the Euro. To quote James Turk of gold money,

``When viewed against gold, the time-tested numéraire of all national currencies, we can see that the euro is collapsing almost as fast as the dollar, which is not too surprising. The dollar and the euro have both caught the fatal disease that inevitably inflicts and eventually kills all fiat currencies – central bank mismanagement."