Analysis of the effect of economic policies from Washington on the gold market

1. Comparing
Economic Policies & Impact on Gold
During Reagan/Volcker Period
Versus
Obama/Bernanke Period

2. Monetary Policy
• Reagan/Volcker Money Supply Restricted
• Rather than Monetize Debt Bonds were
sold to pay for deficits
• Obama/Bernanke Monetizing debt & Selling
Bonds Simultaneously to pay for deficits.
–

3. Economic Theory
• Reagan Supply Side oriented
Higher inflation creates more unemployment.
Just the opposite of the Philips curve
conclusions.
• Obama Demand Side oriented
Bernanke sides with the Philips Curve. More inflation
Lowers unemployment.

4. Tax Policy
• Reagan Big reductions in marginal
Rates
• Obama Income Tax rates remain
unchanged for two years.
However, tax rates on Social Security
Withholding were lowered. This fits in with
demand-side preferences.

5. Markets
• Reagan Gold prices fell after toping out 9 months before election.
Stocks rose eventually after tax cuts.
Prime rate started at 21% but later came down.
Bonds prices eventually rose and rates came down.
Due to political arguments with Tip O’Neil, Speaker of the House, spending
cuts could not be agreed upon as Reagan wanted. Therefore, National debt
increased
exponentially. President Reagan acknowledged this was his greatest
disappointment of his presidency.

6. Facts
• In the Reagan Era, eventually stocks rose
when U.S. Treasury debt rose.
• Inflation eventually fell during the Reagan Era
and interest rates fell.

7. Question
• Can we expect higher gold and silver prices if
we have:
• higher interest rates in the long term bond market?
• Higher stock prices?

8. Question:
• Are Increased levels of U.S. Debt good for
Gold and Silver?
• Can this question be isolated from other
factors which are positive for gold and silver?
For example, if the U.S. debt grows but
reserves at the Fed remain high, will debt
levels not be important for gold and silver
prices?

9. Question
• Are higher interest more likely with Obama than
lower interest rates in long term bonds?
• Would higher interest rates and higher levels of U.S.
Treasury debt weaken the correlation from the
Reagan era between lower bond rates, higher debt
levels, higher stock prices, and lower gold
and silver prices?

10. If Obama gives us
• Higher inflation and higher interest rates, can
we forget about the Reagan era correlation
between higher debt, and lower gold/silver
prices?

11. Question
• Can we have under Obama all four
simultaneously?
• Higher gold and silver prices
• Higher stock prices
• Higher levels of U.S. Government debt
• Higher long term (10 years or more)
interest rates.

12. Will Congressman Ron Paul
• Have any significant effect in 2011 and
beyond?

13. Question
• At what point will the level of U.S. Treasury
debt be a problem to the markets?