Why 1980s Prices Will Look Pale This Time

Maybe it’s because core inflation in the U.S. was reported yesterday at a higher-than-expected 2.7% — the largest rise since October…

Or maybe investors around the world are awakening to the massive debt levels being reached in the U.S. After all, total U.S. household debt was $6 trillion in 1999. Last year, it surpassed $12 trillion. We don’t know what the total U.S. government debt is, since the government doesn’t include future promised obligations to its citizens in its numbers.

We can only deal with facts my dear reader… and here they are:

— Gold bullion rose $23 an ounce yesterday (thank you, I’ll take that).

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— Gold bullion closed 2006 at US$632 an ounce. Yesterday, bullion closed at a new nine-month high of US$684 per ounce. Gold bullion is up 7% so far this year and up 23% over the past 12 months.

As we all know, gold bullion prices reached a record US$873 per ounce in January 1980. We’re almost there… And this time around, my dear friend, 1980s prices will look pale in comparison to how high gold bullion prices will move.

There is so much happening economically in the U.S. and around the world, and it’s all causing concern for the U.S. dollar. We can start with China having too many U.S. dollars, and we can talk about asset prices (housing) starting to fall in the U.S.

As mentioned earlier, record debt levels in the U.S. don’t help, and neither does a U.S. personal savings rate equivalent to that of the Great Depression. Will investors run to gold when the stock market finally runs out of steam? Well, we know they won’t be chasing real estate this time around. The bottom line is that gold is the only real alternative to the U.S. dollar in today’s economic environment.

Back in 2001/2002, I started writing about quality gold stocks as a great investment. Today, with gold bullion up close to 200% from its 2001 low, I still see gold as the best investment alternative available to the average investor.

NEWSFLASH — U.S. home prices fell in 2006 from 2005 in half of all major U.S. metropolises according to the National Association of Realtors. It’s the first time since 1979 that the association recorded price declines in so many major cities. The carnage in the U.S. housing market continues almost unnoticed by the major stock market indices like the Dow Jones Industrial Average and the S&P100. My view — you are witnessing a classic bear market trap in the making.