Tags: Gold | Hits | 24-Year | High

Gold Hits 24-Year High

Tuesday, 13 December 2005 12:00 AM

Christmas is less than two weeks away – but it is by no means too soon for economic pundits to declare this holiday shopping season an unbridled success.

First in line under the money mistletoe is New York broker-dealer ISI Group Inc., which tracks the sale of – you guessed it – Christmas trees as a key indicator of the overall health of the holiday shopping picture.

According to Gene Colter, writing in last weekend's Wall Street Journal, ISI contacts tree farms, farmers' markets and other tree sellers each week in December to gauge output. Then, by analyzing the amount of pine needles that make it into Americans' SUVs, they can determine the overall health of the economy.

"The inspiration for this whole process came from a fixed-income investor out in Denver whose family owned a Christmas-tree farm," says Oscar Sloterbeck, head of ISI's company surveys. The tree farmer noticed that when times were good, people bought bigger trees and loaded up on wreaths and garlands.

So what is the verdict from ISI?

The company says it's going to be a good Christmas – with plenty of comfort and joy.

According to the Web site infozine.com, Christmas tree farmers don't do too badly in the old pocketbook. In 2004, U.S. holiday tree sales reached $506 million. 

This week, Barron's offers some interesting economic predictions for 2006 in a piece titled "Extreme Contrarianism."

And they are in sharp contrast to most analysis, which is based on conventional wisdom.

The article's authors, Barron's columnists David Ranson and Penny Russell, quote British band Chumba Wumba, saying: "Everything you know is wrong."

"With all due respect to the prominent prognosticators whose views are presented in this week's issue, we think the 'Nineties anarcho-punk English band pretty much sums up our view of the conventional forecasters."

The authors say they shy away from the traditional business-school mindset, which just doesn't pan out most of the time.

"That leads us to predictions that are radically different from the conventional wisdom," write Ranson and Russell. "Indeed, we believe that consensus forecasts for markets and the economy are off base on many counts."

Consequently, the Barron's duo offers some predictions for 2006.  Here are some forecasts on which the pair has a different view:

You can't have inflation if the market value of the currency is on the upswing, the authors say. "(But) the market value of the dollar, however, is not what it fetches in terms of other paper currencies such as the euro or the yen. It is the dollar's purchasing power in terms of the most stable benchmarks: "hard" assets such as gold and other commodities. Measured in those terms, the dollar's market value continues to decline. This means that the economy is bound to experience more and more inflationary symptoms – even if fuel prices continue to retreat."

"The Federal Reserve itself doesn't know when it will stop raising interest rates," the authors say. "That depends on the ongoing flow of information from the economy, especially with regard to inflation. Those who think the Fed will quit soon are assuming that inflationary symptoms will ease up in the coming months and years. As we've already said, that is not a safe assumption."

Barron's concludes that the Fed won't stop raising rates until it hits 2000 levels of 6% or higher.

Not so, says Barron's, which predicts that in the 2006 stock market, inflation will rear its ugly head and keep stocks down for a while.

"It is no accident that, in the past half-century, every single five-year period in which equities managed to beat cash by even an average margin was a period of decelerating inflation, as signaled by the prices of precious metals," say the authors.

"Periods of subnormal stock returns tend to last a long time because once inflation starts, it is very difficult to dislodge. We expect the stock market to remain flat. In fact, as yet we see no light whatever at the end of the tunnel."

But, again, the authors say that inflation will not only slow stock market growth, but economic development, as well.

"Inflation, however, is another issue," says Barron's.

"It has corrosive effects on the economy that do not appear to be declining with the passage of time. We estimate that mounting inflation will cause the economy to slow somewhat over the next several years. If present trends do not reverse themselves, we are in for a decade of ‘stagflation.' "

The authors do say that:

Zeal for gold is at a new high, as it hit $541 in Monday trading. That price is a 24-year-high.

Analysts say that gold's climb isn't done yet, and that it could go north of $570 an ounce as early as January, according to Forbes.com.

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Christmas is less than two weeks away - but it is by no means too soon for economic pundits to declare this holiday shopping season an unbridled success. First in line under the money mistletoe is New York broker-dealer ISI Group Inc., which tracks the sale of - you...
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Tuesday, 13 December 2005 12:00 AM
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