Eric King:  “Tom, you had this amazing chart you sent me of the overlay of inflation today vs. the late-1950s to early 1960s.  Inflation really started to take off in 1958 and that continued into the mid-1960s, and once again we are seeing signs of that happening today.”

Fitzaptrick:  “If you compare today to that period of the late 1950s and into the mid-1960s, we are on a very similar path, and that path was also born of a very easy monetary policy dynamic.  We saw from the mid-1960s the point that is most similar to today.  We started to see the core inflation rate pick up and it accelerated quite dramatically over the next 18 months....

Continue reading the Tom Fitzpatrick interview below...


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“Back then the initial wave of inflation wasn’t attributable to the oil price.  But we think this time it will be very similar with the ultra-easy monetary policy.  The danger here is that we are coming to a real tipping point where we may see a dramatic pickup in inflation again (see inflation spike in the chart below).


So the core inflation numbers may start moving up, but that really understates the story.  If you take a step back and think of average American, who overall has seen declining real income, and who doesn’t have a big stock market portfolio, and you look at what’s happening in terms of the price of fuel, rent, food, education, transport, health care -- all of these costs are staples.  They are not discretionary spending. 

When you look at those costs, they have already been pushing higher in price.  So at this point, even though it’s not reflective in the core indices, out in the real world these price spikes are already taking place.”

Eric King:  “If that core overlay chart you sent me turns out to be correct and we start to see inflation really soar, and we are seeing early signs of that now, what will than mean for the price of gold?”

Fitzpatrick:  “Gold has the flight-to-safety aspect to it, but it also comes to life when there are fears that inflation is seriously taking off.  This is particularly true if inflation is taking off and it is perceived that the Fed is behind the curve.

There is certainly an argument that inflation is going to head well above the 2 percent inflation rate we hear talked about. In that environment, there is no doubt that the Fed will be behind the curve.  Hopefully this will not be to the same extent as we saw in the 1970s, but they will be behind the curve.  If and when the market begins to realize that, it’s hard not to expect this will be a major benefit for the gold price.

You can look at what happened with the gold price in terms of the sharp up-move we saw in the 1970s.  We may not see a move of that magnitude, but nonetheless if you use that as a reference point we saw gold go up by a multiple of about eight times in price between 1976 and 1980 when the really sharp inflation came.

Prior to that we saw gold go up by a multiple of about six times in price as well between 1970 and 1974.  So we’ve seen very sharp moves in gold when we have previously seen a major increase in the core inflation rate.  Even if we saw a move to just a 4 percent inflation rate, with the Fed behind the curve that would be a catalyst for a much higher level in the price of gold.

When Core PCE (inflation) made a move toward 2.5 percent in 1998-2002 and again in 2003-2006, gold rallied about 50 percent and 90 percent respectively. We still believe the present pattern looks to be a double bottom forming but need a break of $1,434 to confirm. If we that that break, then a minimum target of close to $1,700 would come into play.”

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The audio interviews with John Mauldin, Eric Sprott, Bill Fleckenstein, Egon von Greyerz, Dr. Paul Craig Roberts, MEP Nigel Farage, James Dines, Gerald Celente, Andrew Maguire, David Stockman, Art Cashin and Dr. Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

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