Blog : Reasoning for Today's Stock Pick

by Peter Leeds on June 9th, 2015

The Federal Reserve is expected to raise interest rates as early as September.  Higher rates are typically negative for gold prices, since it attracts money to interest-paying investments like bonds.  However, the interest rate hike is widely expected, so has already been pushing precious metals prices lower.
 
When the rate hike does come, it will need to be small, since the economy is dragging along EVEN WITH years of near zero interest rates, and Trillions in new dollars being conjured out of darkness.
 
Speaking of creating Trillions in new dollars, that is the definition of inflation, so please stop arguing that there is no inflation.  Double the number of dollars, each should be worth half as much, so any item would (theoretically) cost twice as much to buy. 

That is why Grandpa's house seemed like it increased in value over the years... but really, it just takes way more dollars to purchase the same asset.  $100 in 1913 is the same as $2,400 today. 
 
Inflation is great for gold prices, since money flows into the safety of the metal to preserve wealth from the deteriorating value of dollars.  With economies around the world at stall speed, there has been muted inflation to this point.  When we do see inflation, it is often hidden or quietly slipped past us.  
 
For example, you may be seeing Phantom Inflation right now - the cereal box is the same size as always, but now it is only 2/3rds full.  
 
Or like I experienced the other day, I bought my usual superfood snack (nuts, seeds, Goji, Hemp....) but when I opened up the bag it turned out to be almost all raisins which are far less expensive.
 
Also, "official" government inflation data says that if you can't afford to eat at a steakhouse any more, that is not inflation, because you could go to McDonald's.  You still would have eaten.
 
While most professional traders are abandoning gold, nations like Russia, India, and China are pigging out.  Here at home our focus is all about a potential interest rate hike, and it's effect on gold prices, but most people are missing the bigger picture.
 
Inflation is running rampant in many countries right now (Ukraine, India, Brazil, many others...), and has a way of spreading...
 
We've also seen a strong run in value of the U.S. dollar, which pushes down prices of commodities.  If our currency cools off, as we expect it will, that will result in higher oil, gold, and platinum prices, along with most other items bought in our currency.
 
The economy may have set itself up for a perfect storm of inflation.  By hiding the true rate, while dumping Billions into the ether, and keeping rates low, there should eventually be a pretty significant rebalancing.  Inflation will start to roll, and can very easily get away from the Federal Reserve.  
 
Gold stocks (the ones which pass Leeds Analysis) will be a major beneficiary, while simultaneously hedging shareholders against the potential of a market meltdown, global chaos, and ridiculous amount of money printing.
 
This may be a good opportunity for investors to position themselves to benefit from precious metals prices.  By this we mean production companies (NOT exploration), not hedged (having a contract to sell gold at current prices in the future), geographically diversified, and a double-digit Reserve Life Index (RLI).
 
This is exactly what our next stock pick is about.  (Will be released within hours).  A Billion dollar production company operating in countries all across the world.  It will be released to subscribers of Peter Leeds Stock Picks.  You are going to want to see this one, so if you aren't already subscribed, you can do it now.

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