Darryl Robert Schoon
Posted Feb 15, 2012

Inverse Lin-omena, the inverse of the Jeremy Lin phenomena where the unknown and previously discounted suddenly rise to prominence; here, the powerful and previously secure suddenly fall.

Today, central bankers, the mandarins of capitalism, are in disarray. Their attempts to contain capitalism’s current crisis increasingly resemble the tactics of a defeated army in retreat. Like Napoleon and Hitler’s respective “Moscow moments”, the 21st century economic crisis has brought to an end the bankers’ spectacular 300 year run at the table of power and wealth.

The indebting of others as a means of accumulating wealth ends when the indebted can no longer pay what they owe. The arcane and esoteric scribblings of second generation University of Chicago trained economists cannot cover up this basic fact, i.e. that the indebted are broke; and soon, their creditors will be as well.

The bankers’ franchise of credit and debt built on a leveraged foundation of paper money fractionally backed by gold allowed the West to accumulate geopolitical power and wealth on a vast scale. That era is now over.

It ended when the gold convertibility of the US dollar was terminated in 1971 when the cost of maintaining a global military presence outstripped the ability of the US to pay in gold what it owed on paper.

It was as if someone removed a pin from the axle of international commerce when the US dollar was no longer convertible to gold. Previously, the US dollar was linked to gold, and other currencies were linked to the dollar. Everything was stable. It is no longer so. Once the pin connecting gold and paper money was removed, everything changed. The axle of international commerce began to vibrate and lately it’s been getting much worse. The fear is that the wheels are now about to come off. - Section 1, topic 3, How to Survive the Crisis and Prosper in the Process, Schoon, 2007

Today’s fragile state of the euro, a fiat currency created in a failed European attempt to compete with and/or replace an increasingly unstable US dollar, is but another indicator that the wheels are now about to come off.

After the US ended the gold convertibility of the US dollar in 1971, gold skyrocketed from $35 per ounce to $850 in 9 years, increasing almost 2,500% in value, dwarfing the later rise of the Dow (from 777 in 1983 to 11,722 in January 2000) a much smaller rise of 1,400% over almost twice the time (17 years instead of 9).

After gold’s spectacular ascent, central bankers decided the price of gold needed to be ‘managed’, as a rapidly rising price of gold signaled that something was fundamentally amiss with the bankers’ fiat paper money, a signal that central bankers did not want sent, a signal that bankers would work exceedingly hard to disguise for the next 40 years.

When stocks lose their value
That’s a terrible thing
When homes lose their value
That’s a terrible thing
But when money loses its value
That’s the most terrible thing of all
Introduction, How to Survive the Crisis and Prosper in the
Process, Schoon, 2007

CENTRAL BANKERS MANAGE THE PRICE OF GOLD

In actuality, central bankers did not work ‘exceedingly hard’ to disguise the real market demand and price for gold. Instead, bankers disguised market demand not by hard work, but by smoke and mirrors, a contrivance common to confidence men everywhere and, today, to central bankers in particular.

To suppress the price of gold, central bankers covertly supplied markets with gold bullion belonging to the nations on whose behalf they ostensibly toiled, suppressing gold’s real price with excess supply. This artifice was discovered by Frank AJ Veneroso, an extraordinary financial analyst and consultant well known only in the rarefied circles of international finance.

According to Veneroso, since the early 1980s central bank gold sales and loans comprised a significant portion of all gold sold. In 1990, Veneroso estimates that 21.5% of gold sold that year came from central bank vaults; and by 2000, central bank gold sales had increased to over a 1/3 (34.6%) of all gold sold.

Frank Veneroso’s story of central bank manipulation of gold markets is found here.

With thousands of tons of central bank gold coming onto the market, it’s clear why the price of gold declined from 1980 until 2001. What is remarkable, however, is that in the face of such overwhelming supplies, the price of gold began to rise in 2001.

THE TURNING POINT

The turning point, however, actually occurred in 1999 and is marked by an event relatively unknown and almost tantamount to financial treason. About that event, I wrote in March 2009:

In 1999, it was rumored that investment bank Goldman Sachs had a 1,000 ton gold short position in the markets. Goldman Sachs was betting that the price of gold would continue to fall and they would be amply rewarded for their apparent “risk”.

Because of central bank manipulation, the price of gold had moved inversely to the rise of stocks for almost 20 years and bankers were making easy money on the bet gold would continue its downward spiral.

However, much to the shock of Goldman Sachs and the central bankers, in 1999 gold stopped falling; and, because Goldman Sachs’ short position was so large, Goldman possibly could suffer catastrophic losses.

This is when England’s then Chancellor of the Exchequer, Gordon Brown, on May 8, 1999 announced England would sell over 50% of its gold reserves, 415 tons of the most precious metal on earth at the very bottom of the market.

The decision to sell England’s gold thereby saved Goldman Sachs and insured the political future of Gordon Brown. Goldman Sachs’ is still in business and Gordon Brown is now [2009] the Prime Minister of England – proving that good things come to those who do the bidding of the powerful (whether either outcome was worth 415 tons of England’s gold is questionable).

Selling a nation’s gold to save the bankers’ parasitic system is now common practice as the banker’s system continues to collapse and gold continues to rise. Since Gordon Brown sold England’s gold, gold has risen from $275 dollars per ounce to its present price of over $900 despite the thousands of tons of central bank gold sold to prevent its inexorable movement higher. On 2/14/12 gold is $1,715]

CENTRAL BANK SALES AND LEASING OF GOLD HAS MADE GOLD AVAILABLE AT FAR BELOW MARKET RATES

To hide their burning house of cards, central bankers have sold thousands of tons of gold from national treasuries, mainly Switzerland, to keep the price of gold below what it would otherwise be. This is the true upside (for buyers) of the bankers’ gold suppression scheme.

While citizens cannot prevent central bankers from selling gold from their national vaults, today they are afforded the extraordinary opportunity to buy that very same gold on the open market at prices heavily discounted to their otherwise true market value.

My current estimate of today’s true market value of gold – without central bank intervention – is in excess of $10,000 dollars per ounce.

Many central banks, however, are today switching sides in the war on gold, preferring to keep their precious metals instead of selling them in an increasingly futile attempt to prevent the inevitable from happening – the collapse of the bankers’ now burning house of cards.

Today, the bankers’ fiat currencies are in a death spiral. It’s only a matter of time until the US dollar, the Japanese yen, the British pound and all paper currencies – including the Chinese yuan – come under the same pressure that now plagues the faltering euro.

Central bankers, however, will do everything in their considerable power to prevent their lucrative franchise of credit and debt based on paper money from collapsing; and, of late, they’ve discovered a new way to suppress gold and silver – the precious metal inventories of GLD and SLV, the precious metal ETFs used by investors to participate in the rising price of gold and silver.

When Europe’s debt contagion spread in the summer of 2011, the price of gold began moving rapidly higher which bankers feared could itself turn into runaway contagion. The below chart shows that GLD and SLV, the ETF funds, were used by central bankers to cap gold and silver prices in mid-August.

Source – www.gotgoldreport.com

Amid growing concerns about Europe’s debt crisis as gold rapidly rose, GLD sold 26.12 tonnes of gold and SLV sold 304 tonnes of silver, driving the price of silver down 8% although gold rose 4.9% despite GLD’s considerable efforts to the contrary.

That GLD and SLV ostensibly dedicated to profit from the rising price of gold and silver would sell their inventories in a rapidly rising market runs counter to their mandate; unless, of course, they did so knowing that central banks would soon ambush gold and silver with deeply discounted lease rates on precious metals that would cut short gold’s increasingly spectacular rise.

Jesse’s Café Americain traces the planned ambush of gold by central banks during their September take-down, read article here. Gold had risen to a record high, $1900, on September 1st and on September 2nd, central banks then took corrective action, dropping their lease rates for gold sharply lower into negative territory.

This meant that central bankers would actually pay bullion banks to borrow their gold and sell it on the open market. The new supplies of gold capped gold’s increasingly steep seven month rise and, by the end of September, the price of gold fell back to $1600.

After Sept 2nd, gold lease rates still remained negative, insuring a continued low price for gold even as the European debt crisis accelerated and the global economy slowed. This is exactly what central bankers intended. Gold is a barometer of systemic distress and central bankers wanted to conceal the flames rising from their now burning house.

Nonetheless, even with negative lease rates, gold again began moving higher before central banks on February 2nd supplied markets with more gold with again sharply lower lease rates deep in negative territory.

As the bankers’ ponzi-scheme of credit and debt disassembles, central bankers will find it more difficult to contain the price of gold; and when gold does break out – as it will – the price of gold will exceed the $10,000 price it would now command if it were not for central bank intervention.

At $1700 gold is cheap; at $3,000 gold is cheap; at $5,000 gold is cheap; at $7,000 gold is cheap. Wait till the central bank sale ends and you will realize how cheap gold actually is.

The wheels are now coming off the bankers’ once invincible juggernaut. Whether the out-of-control bankers will crash in a (1) hyperinflationary blow-off, (2) a brutal never-ending deflationary collapse-in-demand or (3) in a fatal bursting of capitalism’s bloated colostomy bag – derivatives – cannot be known.

But what is known is that the end of the bankers’ monetary fraud is near and its demise closer than most want to believe.

 

THEY’RE NOT LAUGHING ANYMORE

A remarkable blog, www.dailystaghunt.com, reviewed recordings of Fed Open Market Committee meetings between 2000 and 2006 and, interestingly, noted the frequency of laughter during meetings, observing: The number of recorded laughs actually increased in frequency from 2000 to 2006. In 2001, the FOMC erupted into laughter 16.5 times per meeting on average. In 2003, it was over 19. In 2005, 27. And then in 2006, the FOMC burst into laughter nearly 44 times per meeting!

As the 2007/2008 financial crisis grew closer, central bankers grew increasingly relaxed and confident; believing their extremely low 1% interest rates had worked; that they had survived the collapse of the greatest speculative bubble in the US since the 1920s – the collapse of the 2000 dot.com bubble – and all was well.

But those in attendance, Greenspan, Bernanke, Fisher, Mishkin, Krozner et. al., were wrong. Their fatally flawed solution to the collapse of the dot.com bubble, low 1% interest rates, had given birth to an even more dangerous bubble, the 2002-2006 US real estate bubble, the largest speculative bubble in the world whose collapse would bring down the world economy in 2007/2008.

Of course, this wasn’t known in 2006. In 2006, central bankers were still laughing.

Frequency of laughter during FOMC meetings

Year	Average laughs per meeting
2000	16.5
2001	15.375
2002	21.625
2003	19.25
2004	23.125
2005	27.25
2006	43.875

Data on the frequency of laughter at FOMC meetings after 2006 is not yet available. But it can be assumed the frequency subsided after the massive global credit contraction in August 2007 and after the collapse of world markets in 2008.

Note: the possibility that FOMC laughter remained high or actually increased after 2006 is far too macabre to consider. We do, however, await additional data before passing judgment.

(Click on image to enlarge)

Source – www.dailystaghunt.com

Today, central bankers are no longer laughing. Their nights are considerably longer as are their weekends; their daily grocery list might now include quarts of gin and whiskey, prescription anti-depressants and extra-strength deodorant.

We are collectively in the end game, a period of great change where the present paradigm is collapsing making way for what is to come. Keep your thoughts positive and focused on what is coming, not the troubled passing of the present world. Let central bankers do that.

Note #1: I will be speaking at Professor Antal Fekete’s New School of Austrian Economics in Munich, Germany, see http://www.professorfekete.com/gsul.asp. For details, contact nasoe@kt-solutions.de

Note #2: My latest video, What and Who Do Bankers Do (or what I really think about bankers and money). Dollars & Sense show #12, youtube http://youtu.be/hazULFo3oB4

Buy gold, buy silver, have faith.

###

Darryl Robert Schoon
email: info@drschoon.com
website: www.drschoon.com
website: www.survivethecrisis.com
Schoon Archive

About Darryl Robert Schoon

In college, I majored in political science with a focus on East Asia (B.A. University of California at Davis, 1966). My in-depth study of economics did not occur until much later.

In the 1990s, I became curious about the Great Depression and in the course of my study, I realized that most of my preconceptions about money and the economy were just that – preconceptions. I, like most others, did not really understand the nature of money and the economy. Now, I have some insights and answers about these critical matters.

In October 2005, Marshall Thurber, a close friend from law school convened The Positive Deviant Network (the PDN), a group of individuals whom Marshall believed to be “out-of-the-box” thinkers and I was asked to join. The PDN became a major catalyst in my writings on economic issues.

When I discovered others in the PDN shared my concerns about the US economy, I began writing down my thoughts. In March 2007 I presented my findings to the Positive Deviant Network in the form of an in-depth 148-page analysis, “How to Survive the Crisis and Prosper In The Process.“

The reception to my presentation, though controversial, generated a significant amount of interest; and in May 2007, “How To Survive The Crisis And Prosper In The Process” was made available at www.survivethecrisis.com and I began writing articles on economic issues.

The interest in the book and my writings has been gratifying. During its first two months, www.survivethecrisis.com was accessed by over 10,000 viewers from 93 countries. Clearly, we had struck a chord and www.drschoon.com, has been created to address this interest.

The establishment argument against gold comes down to the statement that it is a collectible that earns no yield.  Art, rare coins, stamps and gold and silver bullion do not earn a yield.  Stocks, bonds and real estate earn yields, so the prudent investor should focus on these assets rather than gold or precious metals.

First, let us examine a hole in this argument.  Let us look at bonds and other fixed income investments.  The best instrument here is T-bills because they are virtually risk-free (not counting the risk from the depreciation of the currency).  A study of the yield on T-bills going back to 1933 (which is the beginning of the modern monetary system) shows that the yield paid on T-bills bought at almost any time over the past 75 years has been completely eaten up by the depreciation of the currency.  For example, right now you can buy a T-bill yielding 1%.  But the (official) Consumer Price Index is rising by 4% per year.  So at the end of 12 months time, you receive $1,010 (from your original $1,000 investment) and can buy goods which at the start of the 12 month period had cost $970.  In reality, your money has shrunk in value and you have received negative interest.  It hasn’t been this bad all the time, but the average over the past 75 years shows a return of (very close to) 0% real interest.

This eliminates T-bills as an establishment investment, and it pretty much eliminates any riskier fixed income investment as well.  Because all you are receiving beyond the T-bill rate is a small risk premium.  Yes, you get some extra return, but you have to take extra risk.  The game is not worth the candle.  And if you try so-called inflation protected Treasury securities, they are only protected against the “inflation” reported in the official Consumer Price Index.  Interestingly, it was right at the time that these were introduced that the Bureau of Labor Statistics began to introduce fraudulent statistics into the CPI so that it no longer truly measures the rate of price increase in our society.

What is needed during this period when the U.S. currency is depreciating (as measured against goods) is an economic good which protects you against currency depreciation and which also has a yield.  Stocks have yields because (most of) the companies have earnings.  Real estate usually has a yield (unless it is raw land).  In both of these cases, it is possible to protect yourself against the depreciation of the currency and still earn a return on your capital.

So far the establishment argument is looking good.  Both stocks and real estate, like gold, can protect you against the depreciation of the currency.  But unlike gold they pay a yield.  The problem with this argument, however, is that it is true only for the long term.

Starting with the Kennedy tax cut of 1963, budget deficits and the creation of money became the operating policy for both political parties.  Indeed, the (official) Consumer Price Index has risen every year since that date.  However, different goods react differently to the easing of credit and the printing of money.  The result of this has been the development of what I call the commodity pendulum.  First, commodities lag behind the rise in other prices and become undervalued.  Then they play catch up and rise rapidly.  When they go too high the cycle starts again.  For example, commodities were undervalued in 1971 and dramatically outperformed stocks through the decade of the ‘70s.  In the ‘80s and ‘90s, the situation was reversed; commodities declined, and stocks rose.  Starting early in the new century commodities were once again undervalued and began another rise, and this will soon lead to large scale declines in bonds and stocks.  That is, the first part of this century will be a repeat of the 1970s.

So although the establishment point is correct for the very long term, it is too long for practical trading.  Yes, stocks can give you protection against the depreciation of the currency as well as yield.  But that did not help the stock investor from 1966 to 1982 because he lost 70% of his capital in real terms.

The argument for gold now is the same as it was in the early 1970s.  Gold, and other commodities, are coming off a giant oversold condition.  Over the ‘70s, gold multiplied by a factor of 25 times.  What will happen during this swing of the pendulum cannot, as yet, be predicted.  But it is likely to be quite similar.

Take the establishment supporter who bought stocks in 1966.  It was the recognized “wisdom” of that day to buy “good, sound stocks for the long pull.”  They laughed at the foolish gold bugs buying gold stocks with the price of the metal at $35/oz.  Gold, after all, was a collectible.  This situation is repeating in our day.  The same forces which pushed gold upward then are pushing it upward now.  The ethanol bill plays the role of the Russian wheat deal.  The establishment type who buys “good, sound stocks for the long pull” today is quite likely to sit through a 70% decline in real terms over the next dozen or so years.

We all know what the establishment did in the 1970s.  When gold raced over $800 in January 1980, they said, “We will pretend that this whole affair never happened.  It is too embarrassing to admit that we were wrong and the gold bugs were right.”  Those who do not learn from history are condemned to repeat it.  And repeat it (the seventies) they are.

But when the commodity pendulum is finally over (and that will be quite some time in the future), and the cycle is ready to switch back in the other direction, when the day comes that gold is overvalued and stocks undervalued (similar to 1980-1982), I will be perfectly happy to get out of gold and buy stocks again.

But as I remember the advice of the economic establishment over the past generation, they were as bullish as they could possibly be on stocks in 1966.  And then they turned as bearish as the gloom of night in 1982.  I am confident that they will do the same thing on this second swing of the commodity pendulum.

Thank you for your interest.

Howard S. Katz

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Is gold the true store of value in uncertain times? Will the impending flood of inflation destroy my financial house? How can I protect my wealth with gold and precious metals? These are the type of questions addressed in issues of The One-handed Economist. Subscriptions are available for $300/year online at www.thegoldspeculator.com, or for $290 ($10 cash discount) by sending your check to The One-handed Economist, 614 Nashua St. #142, Milford, NH 03055.

Whenever you embark on a significant activity, and it doesn’t matter whether its business or personal, you have to ask yourself two important questions: why and at what cost. In 1913 the United States adopted a central bank system and an income tax, both of which were and remain unconstitutional. At the time the United States was the richest creditor nation in the world and already had the best central banker in the world, gold! The US settled all transactions in gold and in order to spend more, it would need to have more gold. Gold could not be printed or created in some computer hard drive; it had to be dug out of the ground at great personal and financial sacrifice. Even more than this, gold represented real wealth and that’s why a 1913 dollar bought the same thing as an 1841 dollar, and that’s what a store of wealth is supposed to do. This begs the question why you change something that seemed to work almost to perfection. For the answer to that question, you need to go back a little further, to 1907 to be exact.

In 1907 the markets suffered the worst financial crisis in their history, but this crisis devastated Wall Street while leaving Main Street mostly intact. A lot of big name brokers and bankers went down the tubes as a result of the 1907 panic and that inspired the survivors to get together and create a plan that would prevent another such crisis. The group included Morgan, Vanderbilt, DuPont, and Rothschild, and they all ended up as shareholders in the new and private Federal Reserve System. The problem with gold during a crisis is that you can´t increase the supply overnight, so “bailouts” are not possible. Too big to fail banks and brokerages must therefore fail, and that was an unacceptable and intolerable situation for Wall Street. So they created the Federal Reserve and paper money “to facilitate business and the economy”, which would be backed by gold. In an emergency, you could always print paper and then drain liquidity once the crisis had passed. Additionally, they created the IRS with the mission to tax personal income, so the government would have funds to handle any emergency.

Now we get down to the meat of the issue, at what cost? Everything we do in life has a cost, but usually it’s so miniscule that it is seldom noticed. Going back before 1913 the United States had experienced an industrial revolution that led to the development of a strong middle class in America, and that middle class had as a group, accumulated wealth. That wealth served to make the US the richest creditor nation in the world, and it was decided that wealth would be better served if it were transferred to Wall Street for “safekeeping”. After all, they were in the money business. The private Federal Reserve was created with no assets, allowed to print money backed by gold the middle class had earned, and then charged interest and fees to distribute that money. In 1932 Roosevelt confiscated all the gold held by Americans and in 1973 Nixon eliminated the gold standard altogether. Any attempts to interfere with Fed business was dealt with harshly.

So the idea was to transfer as much of the wealth as possible from Main Street to Wall Street and it would do so through taxation and the creation of a fiat currency, that would eat away at the purchasing power of the middle class. And that is the true cost of the Federal Reserve. The average American has gone from a saver to a debtor, while the US went from the largest creditor nation to the largest debtor nation ever seen. The transition took a century and is now in the final phases and the massive bailouts that we’ve seen are nothing more than an attempt to drain the last cent from the last American before the whole thing goes under. For more than ten years the Federal Reserve has done everything possible to change the primary trend of the markets from bearish to bullish. Although I note the bull market as having topped in October 2007, the real top was back in 1999, but the Greenspan Fed delayed that with massive amounts of liquidity. Now the Bernanke Fed is trying to do the same thing. In modern history no one has every succeeded in changing the primary trend of a major market.

The result of this misguided policy is to postpone the inevitable, but at a cost. The cost is a series of unintended consequences that only now are beginning to float to the surface. Like icebergs, we see only a small portion of the problem until it’s too late. I contend that it is now too late. The ship of the economy is now run up against the iceberg, huge holes are being gashed into the hull, water is pouring in, and all the passengers are passed out in the bar. Any effort to put more punch into the bowl will prove to be futile and the resulting hangover will be debilitating to say the least. The morning after survivors will swear that famous oath of “never again”, form committees, assign blame, and then start the whole process all over again. For the few that will have any money left, and the courage required, stocks will become cheap and there will be a great buying opportunity. For the large majority there will only be misery.

Of course governments are obliged to throw the public a bone every once in a while, no meat, just a bone. Obama ran on the promise of change and then came in and bailed out Wall Street at the cost of US $2 trillion. He distracted the public’s attention with his proposed health care package that in the end no one wanted. Now he has a new mantra, job creation. He recently put forward the idea of a US $40 billion fund for job promotion and now he recommended the commencement of several nuclear plants that will mean more jobs. Unfortunately the President failed to say that most of the jobs for nuclear plants are high paying technical positions and there aren’t that many required. If you really want to create jobs it’s the small business owner that does it, and he has his back against the wall and it gets worse every month, as you can see in the chart posted above. The number of businesses with cash flow problems is on the rise, meaning they’ll reduce their labor costs instead of hiring new workers.

The question now is what can you do about it? I believe the only solution comes in the form of one ounce coins that contain gold. All markets are barometers of future activity and no market is more sensitive to the qualms and traumas of everyday life than gold. Also, I think it’s fair to say that it has never been this difficult to understand the gold market. The IMF comes out and announces the sale of 191 tons of gold, in an effort to manipulate the price lower, and gold falls, for about an hour. Then the Fed authors a surprise rate hike and gold falls for a couple of hours. One gold guru says the yellow metal is going to US $5,000 while Elliot Wave says it’s going to US $400.00. In one minute gold is up 15.00 and an hour later gold is down 20.00. What do you do and who do you believe? Years ago I took a simple, albeit difficult path, and decided that I would only follow the primary trend. The primary trend in gold turned up in 2001 and has been heading higher ever since. I took my initial position in 2002 and I’ve done my best to add on after significant dips. Sometimes I’ve timed it right and sometimes I haven’t, but the one thing I’ve never done is sell!

Below I’ve posted a monthly chart with respect to the gold bull market and I have some interesting observations. You can see that the current price is right about in the middle of the two ascending bands that define the primary trend. Also, I’ve divided the current bull market into the first and second phases, and I’ve given you a short explanation for each of the first two phases. The question now is whether or not gold has entered a new third phase with the breakout above 1,000.00 and we really won’t know until gold makes the next move. Incidentally, the third phase is highlighted by buying from the general public and there are certainly no signs of that. On the monthly chart gold’s price actually appears to be consolidating for the next move higher. It will continue to consolidate as long as it holds above support at 1,048.90. On the other hand it will require a close above

1,136.70 to bring gold to an upside breakout, and that hasn’t happened yet. On Friday the spot gold closed out the week at 1,117.00 and that’s about a sixteen dollar gain for the five sessions, although it felt like a loss due to the volatility.

So the primary trend for gold is up, it is completely intact and in no danger of being violated, and it appears that we could be close to a break out to the upside. So why is everybody so negative? Part of it has to do with ignorance. The large majority of people view gold as a commodity when in fact it is a store of wealth. These same people view fiat currency as money when in fact it is debt; a “promise to pay” can only be interpreted as debt. Gold on the other hand is the only real money and it says so in the US Constitution. It seems that our founding fathers were a lot smarter than we are!

Over the short run the panorama appears to be improving. Gold recently staged a minor breakout above the upper band of a descending trend line in

an effort to move higher. That is a minor victory. The real victory will come when gold closes above the 50% retracement from the December high to the February low and that resistance comes in at 1,136.70.  Until we see a close above that mark, it’s all just a guessing game. Gold had a volatile week with announcements by the IMF and Fed designed to push the price lower and yet it finished higher. The dollar rallied as well and yet gold finished higher, so it would appear that the yellow metal is gaining strength. I have maintained for weeks that the dollar, commodities, and gold are all linked to the Dow over the short run, and I still believe that. Therefore, I won’t get overly excited until I see how gold reacts when the Dow begins to fall in earnest.

In conclusion the dollar, stocks and bonds must head lower over time. The dollar and the bond are debt, while stocks represent value in some company. That value is grossly overvalued as the excess water must be squeezed out. The Fed wants to prevent that and has been doing everything possible for years to stop it. The primary trends in all three are headed down and the Fed wants to change that. If they succeed it will be the first time anyone has ever done that. I suspect they’ll fail. The cost of that failure will be incalculable in terms of both money and social harmony. The standard of living for the average American will drop substantially. Repercussions will follow. The only way to protect yourselves is to buy gold, and physical is preferable to paper. Store it someplace safe and just wait for the storm to pass. I know you are tired of hearing this, and God knows I am tired of saying it, but you’ll come face to face with this reality before the year ends.

Steve Betts
Stock Market Barometer SA
February 21, 2010

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Steve Betts has been involved in the futures market now for over twenty years.

http://www.thestockmarketbarometer.com/