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Negative Real Rates of Return Should Force Investors into Precious Metals

by: Jason Tillberg September 03, 2008 | about stocks: DBP / GLD / IAU / SLV    

Jason Tillberg

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We learned in August that the CPI for July of 2008 was up 5.6% over a year ago. The annual inflation rate for the 3 months prior respectively was 5.02%, 4.18% and 3.94%.

As I write this on September 2nd, 2008, the rates of return you would get for the the 10 Year Treasury Bond is 3.74% making your return - 1.87%.

How about a 1 year CD? 3.65% is the national average according to bankrate.com's website. That's a - 1.95% return.

A 5 year CD, that should give me some "real" return on my savings. Nope! 4.14%, losing 1.46% on that too.

Granted, I'm using last year's inflation rate to project the rate of inflation 1 year from now. If I were to guess what kind of increase in CPI I expect 1 year from now, I'd surmise that it will remain elevated at 5%+ based on the continued increases in M3 supply and lower productivity rates going forward due to increases in energy prices. I'm also going to surmise that the Fed will do all it can to keep rates low so as to keep debt service payments low.

Based on some research I did, the last time we saw negative rates of return like this was in 1979 and 1980 and we all know what happened to the price of silver and gold then.

Unless inflation somehow does come down or interest rates rise, money market and CD holders are going to become angry and fed up with losing their savings and purchasing power. They will seek alternative investments like gold and silver to protect their wealth.

Time is going to tell on this one.

Disclosure: Long SLV and SSRI.

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This article has 4 comments:

  •  
    Sep 04 01:48 AM
    Calmy stay with gold and silver. Royalty among currencies. At least regard them as an insurancepremium mot to lose wealth.
    Reply
  •  
    Sep 04 01:40 PM
    I certainly agree with your observations. Negative sentiment is reaching some levels that also means we might be close to a tipping point. Thanks for your article
    Reply
  •  
    Sep 04 10:07 PM
    This line of thinking may only stick with institutions & sound investors, most people who tuck away their savings @ the local bank has no real concept of inflation/deflation; then again, smart money controls pretty the majority.
    Reply
  •  
    Sep 08 02:03 AM
    "We learned in August that the CPI for July of 2008 was up 5.6% over a year ago. The annual inflation rate for the 3 months prior respectively was 5.02%, 4.18% and 3.94%. "

    And those are lies, data fudged and manipulated by the administration to make things look better than they are and keep down COLA adjustments.
    Reply
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