I have explained in recent letters why I believe the US is on the road to hyperinflation. I think the writing is on the wall, but we will of course only know for certain in the weeks and months ahead.
Nevertheless, there are important clues we can be watching to get advance warning that the US is indeed headed for hyperinflation. Here are five key flash points to be watching for.
1) T-note yields plow through resistance in the 3.12%-3.15% area as buyers start focusing on higher yields to offset the risks of perceived inflation.
2) The gold/silver ratio drops below 67, signaling that money is moving into the precious metals seeking safety from the growing inflationary risk.
3) The XAU Index climbs above resistance in the 134 area. The market for gold mining stocks (like the silver market) is not as deep as it is for gold itself, and is thus more sensitive to money flows. Therefore, the mining stocks (like silver) lead gold.
4) Gold exceeds $1,000. As noted in the preceding article, gold is the ultimate 'canary in the coalmine'. Higher inflation is always preceded by a higher gold price - always.
5) Federal spending continues to explode. Remember, hyperinflation invariably occurs for only one reason. It results from too much government spending that leads to too much government borrowing. These debts are then turned into currency by the government's captive central bank, which describes exactly what is happening in the United States today.
Watch for these events to occur. Some are ongoing - like a rising gold price and growing federal spending. Some are precise points, like the XAU hurdling above 134. But regardless, they all serve the same purpose. They all signal a growing problem with inflation, and indeed, all of these events need to occur to confirm that the US is on the road to hyperinflation.
As noted in the last letter, I will continue to feature this 'Hyperinflation Watch' section in future letters. It is critically important to see whether the federal government gets off this road, or whether it heads over the cliff. Right now it is headed for the cliff, and picking up speed along the way.
A List of Related Articles Follow ...
Hyperinflation Watch - March 23, 2009
Hyperinflation Watch - August 10, 2009
Hyperinflation Watch - April 13, 2009
Hyperinflation Watch - August 24, 2009
Hyperinflation Watch - October 21, 2009