By Howard S. Katz, GoldSeek

In the short term, gold bugs are in pain.  The last 3 weeks have seen a pull back to the Dec. 22 low of $1,075 and have created a lot of short term anxiety.  We have two possibilities.  Either gold will continue down to the $1,000 support level, or it has already made its turn, will leave a gap above $1,000 and then break out above $1,229, April contract (the Dec. 3 high).

When the short term is a puzzle, I take refuge by studying the long term, and so I thought that this week might be a good time to review the long term situation. Above is the 15 year, monthly basis chart of the CRB index, which gives us a good handle on the (second upswing of the) commodity pendulum.  The horizontal line in the middle of the chart is at 337, and this was the top of the (first upswing of the) commodity pendulum in 1980.  Note that this level, which was then resistance, was penetrated in 2005, and this was followed by the blow-off of 2008.

As is normal in technical formations, a resistance level, when penetrated, turns into support.  Therefore, in Dec. 2008, when the CRB once again came down to 337, this level provided massive support, and the commodity markets turned on a dime. Also note the double bottom of 1999-2001, which is serving as the bottom pattern for commodities and is similar to the 4½ year saucer pattern in gold (1998-2002).

The key to the CRB chart is the sudden collapse in the 2^nd half of 2008 (from just over 600 to a little under 337).  This period stands out on the chart, and the normal chart interpretation would be that some important (bearish) news item had occurred at that time and caused the decline.

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By Peter Brimelow, MarketWatch.com

NEW YORK — Gold grinds to new highs — but the gold bugs are still optimistic.

On Friday evening, Australia’s The Privateer headlined the link to its (free) long-term $US Gold 5 x 3 Point and Figure chart: “Latest update November 13, 2009 — Gold closes above $US 1115.00 — new all time high.” See gold chart:

http://www.the-privateer.com/chart/gold-pf.html

And very handsome it looks too. Significantly, the uptrend line which marked the top of gold’s run in March, 2008 is still safely far away.

Gold bugs are particularly excited because, since the beginning of September, gold has also been rising in other currencies — not as much, but quite significantly. This is now very easy to follow because the U.K. coin dealer Kitco makes available free charts comparing $US gold to gold expressed in the US Dollar Index Future, a six-currency basket excluding the dollar. This enabled Kitco to say after Friday’s close that the $16.20 gain seen in their day was $5.90 due to $US weakness and $10.30 due to a rise in non-dollar terms.

What happens next?

Peter Eliades of Stockmarket Cycles is unhappy, noting on Saturday morning:

“Gold has had an upside projection to between $1,111-$1,131 for several months and has now moved well into that projection window. That suggests it could be reaching a top here. As we noted yesterday, however, the Fidelity Select Gold Fund has an equivalent upside projection between 52.17-56.40 and the CBOE gold index GOX has an equivalent projection to between 241.45-256.40. Unfortunately, those two projections do not align with the projections for the metal itself.”

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A refreshing look at gold and the latest happenings in the financial marketplace in the U.S. from Sara Patterson, regular commentator on Kitco.com where this article has already appeared.

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The Daily Reckoning

The US dollar is a sort of monetary brand. And like any other brand, it can fall out of favor. Even iconic brands can rapidly lose their “must-have” caché. Sometimes, a brand can disappear entirely, as did Pan American Airways or “Members Only” jackets. But there is always something else waiting to take its place. So it is with the US dollar, a brand making lows in the financial markets.

The dollar has been the “Coca-Cola of monetary brands,” says James Grant, editor of Grant’s Interest Rate Observer. But even the best of brands can be lousy investments. Grant uses the analogy of The New York Times. It was the greatest name in newspapers. In 2002, the stock sold for $53 per share – an all-time high, as it turned out. Today, the “Gray Lady” fetches only $8 per share.

“What happened?” Grant asked. The World Wide Web happened, he says. “The Times has hundreds of reporters, but this is a story they seem to have missed.” As if the lowly stock price was not evidence enough of its decline, the NY Times got another reminder when it borrowed $225 million against it headquarters building. The cost of such borrowing, Grant reports, was 14%. The august Times today borrows at rates no better than a working-class stiff at a pawnshop. The US Treasury should take note. The government seems as intent on creating dollars as prolifically as bunnies create other bunnies.

Here we get to John Paulson, a presenter at the Grant’s Fall Investment Conference and undoubtedly the richest man in the room. Portfolio magazine dubbed him “The Man Who Made Too Much” after he made $3.7 billion by betting against mortgage-backed securities (MBS). He is one of the greatest hedge fund managers ever.

Gold is his favorite today. As to why, Paulson presented a simple, but compelling case. First, the monetary base has exploded in a way we’ve never seen before. The monetary base is essentially the Federal Reserve Bank’s currency and reserves. The Fed, by buying up securities in this crisis, has pumped a lot of money into the economy.

You’ve probably seen this chart, or some variation of it. Still, there haven’t been noticeable signs of inflation as a result of that big spike – not yet.

As Paulson explained, that’s because this base money has not yet been lent out and multiplied throughout the economy. Yet the monetary base and money supply are highly correlated, “almost 1-to-1 between the two,” Paulson said.

That means that as the monetary base expands, the money supply surely follows, though there is a lag. (Money supply is a broader measure of money than just the monetary base, as it includes personal deposits and more. The monetary base is like a kind of monetary yeast. It makes money supply rise.)

If money supply grows faster than the economy, that will create inflation, says Paulson. As it is impossible for the economy to grow anywhere near that vertical spike in the monetary base, Paulson contends inflation is coming.

The US is not alone in its money-printing exercise. The supply of most currencies is expanding rapidly – even the normally tame Swiss franc. In the race of paper currencies, they are all dogs. Hence Paulson’s interest in gold, which no government can make on a whim.

Therefore, in the content of the exploding monetary base, gold seems relatively cheap. In other words, as the money supply rises, so does the price of gold, eventually. As a result, says Paulson, “gold has been a perfect hedge against inflation.”

There is some slippage over time. The gold price can change faster or slower than the money supply. But when the market gets worried about inflation, the gold price usually changes much faster – as happened in the 1970s. In 1973 – to pick a typical year – inflation was 9% and gold rose 67%. That was a pattern common in the 1970s.

The potential for inflation this time around is greater than it was in the 1970s, given that the growth in the monetary base is so much greater than it was in the 1970s. Gold could do much better this time around, reaching “$3,000 or $4,000 or $5,000 per ounce” as Paulson said.

I keep thinking how future historians will look back at the present day and see clearly how this unfolded. They will see the litany of news items that pointed to the dollar losing its top perch: China and Brazil settling up trade in their own currencies. The Russians and others openly calling for a new monetary standard. Even mainstream outlets are discussing alternatives to a dollar-based standard, a province once solely occupied by cranks and gold bugs. Not a week goes by without these kinds of stories.

As for a replacement waiting in the wings, Grant offers up gold. Indeed, a kind of “de facto gold standard” seems to be taking shape. The SPDR Gold Trust, the largest gold-backed security in the world, is now the sixth largest holder of the metal in the world. Anybody with a brokerage account can easily buy gold today through the trust, which trades on the NYSE under the ticker GLD.

It’s still early. Most people still own no or very little gold. As it becomes clearer what’s happening, they will buy more gold, especially as it is now easy to do so.

The gold supply, too, is limited against the vast pool of dollars. As Paulson points out, global money supply is 72 times the value of gold. I’m betting that gap will narrow. It only has to narrow a smidgen and the gold price flies.

As Grant eloquently put it: “Gold is a speculation. But it is a speculation on a certainty: the debasement of the currency.” Gold stocks, too, are a speculation. But they are a speculation on an inevitably higher gold price.

Regards,

Chris Mayer,
for The Daily Reckoning

Brand Disloyalty originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets.

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The Daily Reckoning

What a day for gold, yesterday! WOW! In case you were trapped in a cave and didn’t hear the news… Gold, which I said yesterday morning looked like it was going to take out its all-time high, did take out its all-time high, and not just take it out! Gold pushed past the all-time high of $1,033.90, and didn’t stop until it was trading $1,047 and change! WOW! No check that… Double WOW!

The Reserve Bank of Australia’s (RBA) rate hike the previous night, opened the door to this run by gold, as the gold bugs all came out and bought the preferred investment to counter soaring inflation… You see, if the RBA is raising rates, when most every other central bank is stuck in the mud with near-zero rates, the RBA must see something, eh?

Well, I don’t know what they see, but I would guess it’s inflation coming around the bend… Now… The RBA did say that they realized that they had reacted quickly last fall cutting rates too quickly and too low, and this rate hike would begin to reverse those panic cuts… Of course, the RBA did not say that they saw inflation… But riddle me this, Batman… Why would the RBA not just wait and hike rates 50 BPS in a couple of months if all they were doing was reversing their panic cuts?

So… Yesterday was all about gold! And why not? Gold has a few things going for it, right now… 1. Dollar weakness, 2. Inflation fears, 3. Rising oil prices and probably the biggest thing would be, 4. The momentum buying that takes place when mom and pops all see on the evening news that gold has reached an all-time high, and they go out the next day and buy… Shoot Rudy, we couldn’t get these people to buy when gold was clawing its way to $900, couldn’t get them to even notice gold when it was $950, but now that its at the all-time high…

Today… I think we’ll see things settle down a bit on the gold front. Oh, and I don’t mean to take the move in silver lightly… Silver pushed way past $17 once again, following gold higher… Instead of gold today, I think it will be more about the dollar.

Yesterday, I told you about the story in the UK Independent regarding the alleged secret meetings of countries to remove the dollar as the clearing mechanism for buying oil. I did mention that the Saudis had denied these meetings had taken place. Now… Here’s the big deal behind any removal of the dollar as the clearing mechanism for oil… It’s the perception, folks… The “KING DOLLAR” would no longer be needed to buy oil…

As far as the affect on the dollar, the actual physical removal wouldn’t kill the dollar per se, as most of these oil-producing countries now take the dollars they receive for oil and trade them right away for something else… So the net affect now on the dollar is zilch. The dollar is bought, the dollar is sold… But, the perception, folks… This is the Big Kahuna here… And, think back to all the discussions we had a couple of months ago regarding the calls to remove the dollar as the reserve currency of the world… Wouldn’t removing it from oil trades be just another step in that direction?

OK… Well today, the commodity currencies are the ones front and center in the assault on the dollar… Aussie (AUD), kiwi (NZD), loonies (CAD), real (BRL), rand (ZAR), and krone (NOK) are all lighting up “green” on my currency screen, which means they are UP versus the dollar! Doesn’t it make sense that these commodity currencies would be the currencies to push the dollar around the schoolyard, especially after the RBA opened Pandora’s Box of interest rate hikes? I think so… Because, as I said yesterday, I think we’ll begin to see more countries/central banks come to the rate hike table… And they are all on this list of commodity currencies! Which again points toward “seeing inflation pressures” in the future.

And the euro (EUR)? Well, even the best fall down sometimes; even the stars refuse to shine sometimes, eh? The official “offset currency to the dollar” participated in the currency rally yesterday, moving as high as 1.4765, but overnight, it has retreated to 1.4715… Yes, even the Big Dog, has to take a back seat to the commodity currencies, right now… But that doesn’t mean the euro is shaky… That the euro is weakening… That the euro has lost its place as the Big Dog… Not one iota! It simply means that sometimes other currencies take a flyer versus the dollar, while the euro bides its time.

And I would bet you a dollar to a Krispy Kreme that the European Central Bank (ECB) is chomping at the bit to join the RBA in a rate hike cycle! The ECB is a stickler for inflation fighting, a “hawk” if you will, and if the RBA is feeling some inflation heat, the ECB is sweating under the collar for sure! But, the Eurozone is hanging on to its nascent recovery by the skin of its teeth, and would not be able to continue if rates were hiked, right now… So, here’s the deal… The ECB “wants to”, but can’t hike rates… But you can bet your sweet bippie that the ECB will hike as soon as they see the light at the end of the recession tunnel! I mean, they resisted cutting rates to the bone, didn’t they? That alone should give you an inkling of what’s on their minds!

I think at this point it is important to note that even with the currencies moving strongly versus the dollar since March, they are still roughly 10% below the high levels that they had reached before the financial meltdown in August of 2008. So, some people wonder if they “missed the boat” because of the strong moves since March… I think this proves that they could potentially see the currencies move back to their previous highs.

Ty Keough pointed something out to me yesterday when I was talking about this to the desk… Ty said that this move probably has been more genuine, in that, prior to the financial meltdown there was all that liquidity and money flying around, pushing risk assets higher and higher… Well, there certainly isn’t any liquidity flying around this time! So the moves by the currencies have actually been stronger, and with a stronger base.

Today… We’ll see the monthly budget statement for September. I laugh at the name of the data, given this has been nothing but a beficit for a month of Sundays now… So, why not just change it to the monthly budget deficit? I mean, it couldn’t even post a surplus in April or June when normally tax receipts outweigh deficit spending! I know, I know, you’re squirming in your seat thinking that I’m going to go on a tirade about deficit spending once again, when you’ve heard it from me over and over and over again for years now… Well, I have a treat for you… I’m not going to go there today! I mean, it certainly isn’t important to our leaders… So why should I continue to make a big deal out of it?

HA! Gotcha! You know me, I can’t just leave the deficit spending, and national debt alone! I can’t let the leaders of our country win! I’m going to fight them to the bitter end, and you should too! Come on! Follow me! We can win this battle, if we have enough people to fight it!

And then there was this… I’m seeing more signs that the break of currencies and stocks is happening… And what a welcome thing that would be! These two have different pricing mechanisms and a low correlation to each other, which leads to both being in an investment portfolio for diversification… But, as chronicled many times in the past, since March of this year, the two have moved together… But last week, we saw a sign that fundamentals might be coming back into play… And then overnight, in Asia, we saw Asian stocks move significantly higher, and the dollar remain at current levels, not getting sold, as in the past six months… Hmmm… Maybe, this is just another teaser… But, I have to think that a return to fundamentals is coming… And none too soon either! For you all know what I think of future stock returns!

OK… To recap… Gold hits an all-time high and continues to move higher! Did the RBA smell the smoke of inflation burning? The commodity currencies are the story today as they are the leaders of the pack versus the dollar. Perception is the key to the dollar being removed as the clearing mechanism for oil… And, the budget deficit prints today.

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets. Follow the Daily Reckoning on Twitter.

Gold Soars to an All-Time High

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Mark Brown submits:

Gold traders and investors have been waiting for a clean break above gold’s nominal all-time high, recorded back in March 2008, but the process has been anything but sure and swift.

Having risen approximately 300% since the start of its bull run in 2001, gold has far outpaced the investment gains in virtually every other investment class, including stocks, bonds, real estate and cash. Gold bugs feel certain that this time will be the ‘big one,’ and that the precious metal will likely hit $2,000 – $3,000 an ounce, if not higher. Commodity experts like Jim Rogers also believe that gold will continue to surge higher, right along with most energy, food and base metal commodities; in fact, some believe that the bull run in commodities still has another 5 –10 years to run higher, given the tremendous demand from developing economies for massive amounts of raw materials.

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Rolfe Winkler, CFA submits:

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The Daily Reckoning

On one hand, the deflationists are claiming that given the extremely high debt levels in the West, further inflation is impossible. On the other side of the argument, many proponents of inflation are calling for Zimbabwe style hyperinflation. In this business, everyone is entitled to their opinion; however it is my contention that we will get neither deflation nor hyperinflation. If my assessment is correct, once business activity picks up, our world will have to deal with high inflation.

Although I have great sympathy for the deflation crowd, given the reckless attitude of the central bankers and their ability to create debt-based money, I do not believe deflation (contraction in the supply of money and total debt) is very likely.

For sure, in this post-bubble environment, American consumer debt continues to contract, but this is being more than offset by the expansion in federal debt. Over the past year alone, federal debt in America has surged from US$9.645 trillion to US$11.813 trillion. In other words, during the past twelve months, American federal debt has risen by a shocking 24.47% and it now stands at 83.52% of GDP! Now, given the ability of the American establishment to essentially create dollars out of thin air, I have no doubt in my mind that it be able to inflate the economy. However, this will come at a huge cost and the victim will be the American currency.

In fact, the recent weakness in the US dollar is a sign that central-bank sponsored inflation has started to dominate the private-sector debt contraction in the West. Furthermore, over the past few weeks, various governments have issued US dollar-denominated debt and this suggests that the carry-trade is back in vogue. In a startling move, Germany recently announced that it plans to borrow money in US dollars!

Now, given the ongoing federal debt inflation, debasement of paper currencies, sky-high budget deficits and competitive currency devaluations, the macro-economic environment has never been better for precious metals. Yet, both gold and silver continue to frustrate the bulls by staying below the record-highs recorded in spring 2008.

So, what is going on here? Have we already seen the end of the precious metals bull-market or are we about to witness an explosive rally? Before I attempt to answer this question, I want to make it clear that even though gold failed to better its all-time high during last autumn’s panic, it was the only asset, (apart from US Treasuries) which stayed relatively firm. And looking at the various markets today, gold is the only asset that is flirting with its all-time high. So, whether you like it or not, gold deserves some credit for fulfilling its role as a safe haven.

Now, unlike some of the die-hard gold bugs, I don’t believe that gold is the ultimate asset to own at all times. Without a doubt, there have been times in history when gold has proven to be a lousy investment. For instance, between 1980 and 2001, the nominal price of the yellow metal fell by an astonishing 70%. This horrible price action spawned an entire generation who grew up hating gold and up until a few years ago, the vast majority considered gold a barbaric relic.

However, during other periods in history, when macro-economic uncertainty was high and inflationary expectations were running out of control, gold turned out to be a fantastic asset to own.

If my take on the macro-economic situation is valid, then we are in such a period now and gold must form a part of every investment portfolio.

You may remember that over the past year, central banks have injected trillions of dollars into the banking system and it is only a matter of time before inflationary expectations start spiraling out of control. Up until now, this ‘stimulus’ money hasn’t permeated through the economy in the West but once money velocity picks up, prices will start rising and the investment community will become very concerned about inflation. When the deflation scare abates and people start protecting the purchasing power of their savings, capital will start to flow towards precious metals.

Long-term clients and subscribers will recall that about two years ago, I highlighted gold’s tendency to rocket higher every other year. Figure 1 captures this trend perfectly and you can see that since the outset, gold’s bull-market has been punctuated by lengthy consolidations and the yellow metal has surged to a new high every alternate year.

Figure 1: Is gold about to shine?

So, if gold remains in a bull-market and its trend consistency is intact, its price should surge over the following months. Conversely, if the price of gold fails to climb above its all-time high before year-end, it should start to ring alarm bells as this would open up the possibility that the bull-market may be over. Remember, certainty does not exist in the investment world and savvy investors should remain open to all outcomes.

Now, given the uncertainty in the world today and the ticking inflationary time-bomb, my view is that gold will soon embark on its north-bound journey. So, I suggest that investors hold on to gold and the related mining companies which will probably continue to perform well until next spring.

As far as silver is concerned, it has always been a high-beta play on the direction of gold. If the next up leg in gold’s bull-market materialises, the price of silver will also head towards the heavens. Accordingly, investors may also want to allocate a portion of their investment portfolio to silver bullion and silver producing companies.

Regards,

Puru Saxena
for The Daily Reckoning

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets. Follow the Daily Reckoning on Twitter.

Inflation is Our Future

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By The Mogambo Guru

In case you were wondering, there is no way to stop spending a debt-based currency once you start, which handily explains why Doug Noland, in his Credit Bubble Bulletin, asks “what about an exit strategy? Well, I see a ‘No Exit’ sign. These distortions have been going on for too many years and become too systemic. Indeed, government interventions are at the core of systemic fragilities that ensure Washington will continue to meddle.”

And that explains why Bloomberg reports, “Economic policy makers are signaling they plan to leave emergency stimulus in place even as the global economy pulls out of recession, delivering what Credit Suisse Group AG and Bank of America Corp. call a ‘sweet spot’ for financial markets.”

Well, being a guy who almost never turns down a chance to be scornful and gratuitously rude in response to ridiculous things being said by people who are supposed to know better than to sound so abysmally stupid, let me interpret that for you.

By “sweet spot” they mean a spot where Ben Bernanke and the other central bankers produce excess money and credit by pulling it right out of their nasty butts, and as for how “sweet” it is, look around you! Doesn’t it resemble a world going down the (in keeping with the “butt” theme) toilet? How sweet is that? Hahaha!

And now, although I groan aloud at the idea and my disgusting way with metaphors that seem to center around excretory functions lately, the central banks are promising more of the same, only much more of the same, and probably much, MUCH more of the same, but the same, nonetheless, only, like I said, much, much more, like in “so freaking much money that the whole financial landscape is changed into something weird where the laws of economics don’t even work anymore”, which was hitherto thought impossible but which is, obviously, not.

This confusing, disorienting “weirdness” is why I was happy to get an email from Junior Mogambo Ranger (JMR) David R., as it came just in time to indicate that, yes, things are weird! Thanks!

And, as a bonus, I see that I could use the email as a handy rebuttal to, as far as I could tell, everybody’s opinion that the only people who read my stupid Mogambo Guru newsletter are mental defectives and weirdo crackpots, with assorted gold bugs and gun nuts, and creepy guys who like looking at long-legged women dressed in short skirts and high heels.

Anyway, you can sense his high-powered intelligence when he asks, “Will this current experiment in fiscal insanity require a few hundreds of quadrillions MORE violations of the (economic) Rule Of Law before it all collapses into an economic black swan singularity? Is this where Hawking meets Von Mises??” which he closed with the rare “double question mark” as punctuation.

I was especially appreciative of this choice of punctuation, as it says, “Not only am I a smart guy who reads, or has read, the Mogambo Guru newsletters either once or perhaps many, many times and fully enjoyed them all, each more than the last, perhaps because the newsletter deserves to win a Pulitzer Prize or some other distinguished award that has a large cash component, but I also have an IQ so high that I can utilize various punctuation options in clever and highly emphatic ways, as befits my high intelligence, which you would not ordinarily know about me because people know that I read the Mogambo Guru newsletter, and those people are, (so I hear) mental defectives and weirdo crackpots, which I am not.”

I mention this only because Trichet, the head of the European Central Bank, said that he was willing to continually and always create more and more money, and that “it would be premature to declare the crisis over”, and decided that the European Central Bank should hold its benchmark rate at a record low of a measly 1%, which may have been what caused Bloomberg to decide to add the cryptic “to keep handing as much cash as banks want for up to a year at that rate”!

And on this side of the Atlantic, it gets weird that Bloomberg reported Fed Bank of Dallas President Richard Fisher as saying, “We are likely to see a prolonged period of sluggish economic performance”, which is odd, because I don’t remember the mission of the Federal Reserve, a private bank owned by who-knows-who, being able to achieve “prolonged periods of sluggish economic performance.”

The Fed was, as I recall, charged with maintaining a “stable currency”, which they have manifestly failed to do, seeing that the dollar has lost 96% of its value since 1913, which is now officially “enough of all of it that it can be considered to be all”, a lesson in “rounding off” that I learned after I took a lousy $20 from my wife’s purse when she wasn’t looking, and when I came back, there she was, bad mood and all, holding her stupid purse like I needed some kind of audio-visual materials to refresh my memory or something. So, to keep it from being a total loss, I gave her what I had left: 80 cents.

“But,” I explained, “you got back 80 cents, which is only a loss of 96% of the original $20, which is the same loss that the Federal Reserve has given us in the purchasing power of the dollar, but you don’t make a big fuss with the Federal Reserve! You won’t even sign the hate mail that I write for you to send to them, with your signature and your fingerprints on the paper, wherein you protest their glaring incompetence and their neo-Keynesian econometric stupidities!”

Well, let me tell you that I never, ever heard the end of the story about that damned $20. Never! But I noticed, and constantly protested, that nothing is ever, ever said of the 80 cents I gave her back. Nothing!

And why is that? Because it proves that, as far as she is concerned, I have lost “all” of the money, which she demonstrated by throwing the handful of change right at my head from point-blank range. One of the quarters hit my forehead with a “thunk!” where it left a red mark and a little lump, and when I cried out in my pain and mortal anguish, she laughed and said, “Good!” which shows you the kind of crap that I put up with around here all the time.

So there are several lessons here. One is that even a girl can throw a quarter hard enough to hurt the hell out of your forehead if she is standing close enough and is angry enough, and another lesson is to not spend the money you take from your wife’s purse for a few days to see if she notices it missing, and if she does, then you can seize the purse, saying, “Let me look in there!” and surreptitiously put the money back in the purse while rifling around in there so that you can “find” it and, holding it aloft, triumphantly say, “Hey!”

The biggest lesson is that the Federal Reserve is still destroying the dollar by creating so many more dollars so that the government can borrow them and spend them, which means that you should be buying gold, silver and oil in a Freaking Mogambo Panic (FMP), using the dwindling purchasing power your dollars.

And if you don’t, then you can take comfort in that you are in the majority of investors that must lose so that the minority of investors, who do, can make the money which makes it all so easy that you find yourself saying, “Whee! This investing stuff is easy!”

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets. Follow the Daily Reckoning on Twitter.

Thank the Fed For Your Lack of Purchasing Power

By Peter Brimelow, MarketWatch.com

NEW YORK — Gold seems poised to break $1,000 again, again, again. But the battered bugs are wary, at least short-term.

On Friday, spot gold closed at $994.50, up some $50 on the week.

All the usual elements are in place. The charts are looking good. Dow Theory Letters’ Richard Russell said on Friday: “Gold has just undergone a huge upside breakout. After a $40 rise in two days, gold needs to correct, which it’s doing today. On the point-and-figure chart, the next upside target is the $1,000 box. Above $1,000, I think gold could go for a record-high price above $1,005.”

The Australian service The Privateer makes its trademark US$ 5×3 Point and Figure chart available free. It presents a beautiful technical picture:

http://www.the-privateer.com/chart/gold-pf.html

Earlier last week, using a different charting approach, Pring.com’s Martin Pring said of the gold chart: “A head-and-shoulders that does not work is usually followed by a strong rally, and that would initially be signaled with a break above $95 for SPDR Gold Trust ETF.”

Which duly occurred — SPDR Gold Trust closed at $97.53 on Friday.

Even sentiment looks supportive. The Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold market exposure among a subset of short-term gold timing services tracked by the Hulbert Financial Digest, was unchanged at 25.2 percent. This is important because, as Mark Hulbert pointed out Friday morning, the HGNSI is “nowhere close to this sentiment index’s record high of 90 percent.”

Hulbert said: “The HGNSI hasn’t budged over the last couple of days, despite bullion’s rally. … That is quite unusual.” Indeed, the HGNSI saw peaks of 64.3 and 60.9 percent at gold’s highs earlier this year.

MarketVane’s Bullish Consensus has been a bit more responsive to gold’s gains. But Friday’s close, up 2 points at 85 percent, is still a point below February’s high. In a serious bull run for gold, this indicator usually spends a number of days in the 90s.

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