progress of deep hole, page-42

Thanks RonaldMcRivkin,

The difference between my chart and the one shown in your first link is that I use the 3-month US treasury yield to calculate the real interest rate, while the author uses the 10-yr US treasury yield. Because the 3-month interest rate is lower than the 10-yr rate, my chart shows real rates went negative from 2002-05 while the real rate remained positive in the author’s chart. [Real interest rate = nominal interest rate minus CPI].

But our conclusions are the same. The author has shown that the situation today is more gold friendly than what it was in late 2002 before gold had a great run.

Looking at the author’s chart, the key now is whether the blue line can stay above the black line for an extended period (as it did in 1973 and 1978) or whether it falls straight back down (as it did in 2005). I reckon it will stay above because the PPI is so high (9.2%) and has yet to filter all the way through to the CPI keeping inflation high (blue line). At the same time the US economy will be slowing dramatically meaning falling interest rates (black line).

So come on CTO, show us the gold!

Rowingboat.