Friday, February 01, 2013

INTERESTING CHART O' THE DAY: Inflation vs. Gold, 1915-2010

In order to pay for excessive government spending, the United States and other countries around the world are busy printing money. This practice, known as "debt monetization", is the precursor for inflation. Sometimes, in fact, the act of paying sovereign debt by printing money can lead to hyperinflation and currency collapse; the Weimar Republic and Zimbabwe's recent experience being two noteworthy examples.

I was thinking to myself how a typical investor might be able to profit from a sudden burst of inflation. After all, the printing can only go on so long before a currency becomes a joke. We also know that America's most recent bout of severe inflation took place during the Carter administration.

Knowing that gold and silver are bellwether commodities that tend to march inversely against a devaluing currency, I decided to compare those metals against CPI to determine whether any obvious trends could be discerned.


History tells us that timing a peak is well nigh impossible. Perhaps once gold and silver go parabolic it will be time to sell. And given this administration's march to currency collapse, parabolic it will go.


Hat tips: Wikipedia: Consumer Price Index by Country and MacroTrends.

2 comments:

Stan Burton said...

But what will you sell it for? worthless paper money?

The MUSEman said...

Buy gold as a hedge against inflation? History doesn't bear that out:
http://static.seekingalpha.com/uploads/2010/11/22/763684-129044784747459-ChartProphet_origin.png

Buy gold in case the economy collapses? You can't eat gold. Silver, however, might be helpful to kill the zombies and vampires ;-)

Thanks for reading!