Sunday, November 25, 2007

The Jig Is Up


Has the U.S. current account deficit grown so large that the world has finally decided not to finance it any longer? The deficit has been growing steadily for well over a decade, and is about $800-billion (U.S.), or just over 5.5 per cent of the size of the U.S. economy. It has long been considered to be unsustainable the moment the world loses confidence in the ability of the United States to carry such a load. Has that moment come?

Heads we Win, Tails you Lose

As internal debates in the Gulf and Asian nations intensify over the need to continue propping up the U.S. economy, dangerous signals this past week from the Fed, Freddie Mac, and Wall Street may be pushing them to finally let go of the lifelines that have kept America afloat. Despite clear signs of surging prices in the U.S., the Fed took a major step in undermining its own credibility with its most recent forecast that inflation would remain below 2% for the next three years. As the forecast clearly paved the way for additional Fed rate cuts, Wall Street ignored its absurdity and heralded the announcement as legitimate good news. The celebration is likely infuriating foreign governments, who must be dumbstruck that the Fed can claim contained inflation at home while the declining dollar is fueling massive inflation problems around the world.

Gold and the U.S.$ Today

In such a climate there is absolutely nothing to stop the price of gold in all currencies from trending higher and higher and higher still.

The trigger to this rise is the awful loss of confidence in the banking system and the investments they have engineered. It is called “risk aversion”, but it is more serious than that. Harsh lessons are being learned from bitter experiences that have shocked even the most experienced of investors. Will the crisis go away we are told, not for some time to come? In fact, it could worsen as the structures on which confidence stands stumble under the doubts and fears.

Then it becomes simply a matter of prudence and wisdom for investors of all types in all parts of the globe to protect themselves against this turmoil in something that is not an obligation, a promise, something not dependent on the performance of people or any other hope. Where can they go? They need something they can know will not evaporate as quickly as a changing exchange rate, something they can grip in their hands, something solid that has proved itself in just these sort of times - gold.

Don't be deceived by "news" of "strong holiday sales" this past weekend. Everything is "on sale" in an effort to salvage something from the "holiday shopping season". And nothing brings out the plastic like a sale. Americans are addicted to buying, and binge buying on the "plastic" is the rule of the day. There will be NO profit from these sales, just an increase in our national mountain of debt.

The world has caught on to the lie that is the US Dollar, the US Federal Reserve, and the US Treasury. The jig is up. The world is on the cusp of a Gold Rush. The Comex shorts are on the eve of destruction.

Gold and Silver began trading this evening in Asia strong. Silver has banged on the first Fibonicci line of resistance at 14.90. The Gold Bulls remain in control, with support at 817. Every effort will be made to halt Gold's rise back towards the magic $850. Today is Monday, and it never fails that the Dollar opens the week with a bid. Of course it is quickly kicked aside by those anxious to sell this toxic waste. The magic recovery of the Dollar Friday is only a snapshot of the desperation the central banks face in trying to keep the Dollar from plunging dramatically. One more trip down for the Dollar like Friday's visit to the low 74s, and Gold is on it's way to 900.

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