PMs in a Jobless Recovery

Source: Kitco, Jeffrey Lewis  (7/15/10)

"PM investors should like it for one simple reason: higher prices."


Already months into a "recovery," we're hearing about how this will turn out to be a jobless recovery—that is, the economy will grow without adding any actual jobs or reducing the unemployment number. While we'd all like to embrace that idea, the theory that an economy can grow without anyone being employed simply isn't practical. However, precious metals investors should like it for one simple reason: higher prices.

Jobless Recovery Great for Metals Investors

Because prices tend to be delayed when catching up with the money supply, parts of the economy rise before the others. Money added into the system flows first to the freest portions of the economy, where the price of goods is centralized and there is enough liquidity and volume. This usually happens at the base, where commodity goods rise first, followed by their value-added counterparts.

Oil, for example, may rise well before the price of transporting goods, even though they are highly related. Oil is easily bought and sold on the exchange, while other inputs like ships, docking infrastructure and labor are not as easily bought and sold, and it takes time for inflation to reach those goods and services.

In a jobless recovery, PMs will be the first of any real prices to rise. Because the GDP is inflation adjusted via change in price of goods at the store–not the commodities exchange—inflation is misinterpreted early on until the velocity kicks in and it catches up.

For gold and silver, this means that higher prices will hit the metals market long before they hit your pocket book, giving you both long-term wealth growth and short-term appreciation in your purchasing power.

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