Chicago Fed President Charles Evans said last week that the central bank should increase its target rate for inflation above the current 2% level in an effort to get the economy back on track. Imagine that, the Fed actually believes what the economy really needs is more of the inflation that brought it to its knees in the first place.
How ironic, the oligarchy in D.C., which has taken upon itself the charge of protecting the value of the currency and keeping inflation low, has now gone on record saying that the rate of destruction in the dollar's purchasing power needs to increase! If there is one thing that investing history has taught us it's that when central banks desire inflation, they are nearly 100% successful.
Meanwhile over in Europe, the ECB is running a counterfeiting competition with Ben Bernanke. Yet despite Trichet's efforts to control interest rates, yields on Italian and Greek debt continue their inexorable march higher. The German DAX has lost 30% of its value in the last two months alone, presaging a possible complete meltdown of the European Union.
Can it really be any wonder why investors the world over continue to flock to gold and precious metals mining shares? Mining companies are in one of the few industries in which the fundamentals are booming to the upside. Energy prices remain quiescent as gold prices soar.
The combination of lower energy costs and higher gold prices means that margins for gold mining companies are expanding at a rapid pace. Yet as evidence that investors have shunned gold shares over the last 12 years, the ratio of the gold price to the XAU has gone from 4:1 in 2000, to 8:1 today.
The bottom line here is investors may do well to also accumulate the shares of companies that pull gold out of the ground and not just concentrate on owning precious metals exclusively.