Once again, everyone is convinced that the United States economy is recovering. Of course, this is all based on figures of spent money. Money by consumers at retail outlets, and money spent by the government. It was just announced that we had a record number of foreclosures in 2010. It is expected to be even higher in 2011.
With interest rates at 0%, the economy is on artificial life support. If you got in a car crash and you had a bunch of machines hooked into your body, your doctor might tell you that you are fine. But if you disconnect from those plugs, then you will die. A lot of our plugs are going to come undone soon. The Chinese, in particular, probably won't put up with this for much longer.
CPI is increasing at a 3% rate, which is high compared to inflation numbers in recent years. In 2011, probably even the government CPI number will come in far north of 3%. In other countries, inflation is running even higher. This sounds absurd, since most countries aren't in as bad shape as the Americans. However, it often occurs because their currency is linked to our. They are trying to prop up the dollar so that they can keep exporting.
Many people want to blame these prices on the weather. It's just like the Soviets, who always blamed their starving people on yet another drought.
There was a pullback in gold and silver this week. This may have been related to the surge in the Euro this week. Some people are long gold but short in the Euro. Many people who had that trade undid those positions. That put some downward pressure on gold.
The Euro will still be weak, but it will be less weak when compared to the Dollar. Although gold and silver may have just experience a correction, the long-term decline of the Dollar means that the bull market in gold and silver will continue. The financial community is already telling people to look out for a bubble in gold. But gold is still far from a bubble.
The trends that occurred in 2010 will continue into 2011.