-- Posted Monday, 5 September 2011 | | Disqus

The latest issue of the extremely popular magazine The Economist drums up a long-list of unlikely recession indicators. But the most curious was a correlation between searches on Google for the gold price and past recessions.

Without infringing copyright we cannot reproduce the graph but the correlation between a surge in searches on the Google Internet search engine for ‘gold price’ and periods of recession was pretty much spot-on. Needless to say there was a massive surge in these searches in August.

Gold antipathy

However, commentators like The Economist still do not understand gold. Every article they have written on the yellow metal over the past decade has contained wholly wrong conclusions about the price! It has gone up and up, and none of the downs has been more than transitory.

The reason for this gross error is that The Economist has a fixation on gold as an indicator of market sentiment rather than as an alternative currency. They flagged this up again this week with the Google search indicator, and ignored the bigger picture on precious metals that they ought to understand better as leading global economists.

What you should be comparing the gold price to is the inflation of monetary aggregates. Think of the $16 trillion pumped into the global economy by the Fed over the past three years. Where did it go? What did that mean for the total volume of money in circulation?

Did the supply of gold and silver rise by the same amount? Of course not, and neither did the available supply of many industrial commodities and that is one reason why we have experienced rising prices in a recessionary slump.

Gold endgame

The endgame for gold and silver only comes at very much higher prices once you understand this background. The money printing is not about to stop, or if it does this will only be a pause before a recession shocks the central banks to print even more, so the gold price will go up.

But what happens then? Eventually the bond markets of the world will be swamped by new money and crash, and then the value of paper money will really plummet. That is when you will really want to be holding gold and especially silver which is even rarer.

The Economist really needs to rethink its approach to precious metals and become a convert to real money as the only one with a future. Many of its readers have already got it.

-- Posted Monday, 5 September 2011 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link

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