"The current policy favors dollar devaluation to inflate away our debts. Since we cannot operate in an environment of deflation, the Fed is determined to cause inflation. As long-term interest rates rise, the Fed Funds rate remains at 1%. The system must be re-inflated at all costs. This is helping the debtors and hurting the savers. In the end it will still be the big debtors that get crushed! As debt becomes insignificant and paper gets piled on top of paper, the dollar continues to lose value. What will you do to protect the purchasing power of the money you have saved? Bonds have a long way to come down to return interest rates to historically “normal” levels, stock valuation needs to improve with higher earnings or lower stock prices, and the dollar will be in a bear market until our current account balance improves significantly. There aren’t very many places to go except commodities, gold and silver.
From the charts you can see the primary relationship between the dollar and gold is in opposite directions. The pattern is obvious. Since gold took off in December last year the dollar has gone in the opposite direction up until about six weeks ago. In mid-July the dollar continued its counter-trend rally that began in June, but this time gold continued to strengthen right along with the dollar. Now that the dollar has met its match with the 200-day moving average, it’s about to head down again with gold starting from a higher base. Gold closed today at $375.30, but met resistance all day at $377.00. The breakout is keeping gold enthusiasts on the edge of their seats since the mining shares are so volatile. Gold to $425 will force an explosion in gold and silver stocks as in the December ’02 – June ’03 period. During that time frame the HUI Index moved from 60 to 150 for an increase of 150% in six months. The current move has gone from 115 to 193 for a 68% gain in the last six months, so a good part of the bullion move has been priced into the equities. If gold and silver stocks see the same 150% gain as last time, the HUI would run another 100 points to around 290. Silver dropped a few cents today to close the week at $5.10 per ounce. Both metals are on the verge of breakout. Some commentators that I have read suggest the traders in the futures pits are now engaged in hand-to-hand combat."
Scuba
Fear blind us opportunity, greed blind us the danger
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