GOLD

[AMR]

The US dollar index is forming an all too familiar pattern. This is certainly a result of wreckless monetary policy turning deflation in to a potential stagflationary situation. At this point we recommend purchasing commodities (DYY is a good ETF because it is 2x leveraged and well diversified) and other currencies while there are reasonably priced opportunities. We like the Euro and Yen for this trade.

US dollar index shows head and shoulders pattern

The courageous may consider purchasing commodities stocks as they will likely participate, but the future of the equities market is not necessarily certain as the recession is deepening. Today’s unemployment claims were higher than the expected 525k at 573k. That is a very bad sign that the worst is far from over in terms of how many layoffs we can expect.

[Dr_Who]

Mick, great article... thanks.

[Aussie]

Gold This Week.
December 12th, 2008
The Privateer

For no discernible (or announced) reason, the US Federal Reserve recently announced that the last meeting of their Federal Open Market Committee (FOMC) would be streched from a scheduled one-day to a two-day meeting. Originally scheduled for December 16, the meeting is now to take place over December 15-16 with the decision on interest rates to be given on December 16.

Of course, this is the FOMC meeting at which the Fed is universally expected to announce the lowest target Federal Funds Rate in their 95-year history. The current rate is 1.00 percent. For over a month, the Fed has been expected to cut that rate in half to 0.50 percent on December 16. More recently, as the data on the real US economy has steadily worsened, a slowly growing chorus has begun for an even bigger cut. On December 11, futures contracts on the Chicago Board of Trade showed an 84 percent chance that the Fed will actually lower by 0.75 percent to a target Fed Funds Rate of 0.25 percent at the December 15-16 meeting.

Whatever the rate cut, be it 0.50 percent or 0.75 percent, it is clear that the last FOMC meeting of 2008 will also be the Fed's last chance to produce a "headline" rate cut. In 2009, there will no longer be any room for any more big Fed cuts. There is certainly no room for interest rates to fall at the shorter end of the US Treasury's yield curve. This week, rates on three-month Treasury paper actually dipped into NEGATIVE territory. On top of that, the Treasury sold $US 27 Billion in three-month bills this week at a discount rate of 0.005 percent. That is the lowest rate since the US Treasury began debt auctions in 1929. "Investors" are, in effect, paying the US Treasury to retreat into the "safety" of its debt paper.

This situation cannot last for long, and the grotesqueness of it is starting to have effects. The US Dollar dived this week as the trade weighted USDX index fell sharply. As recently as November 21, the USDX closed on a spot future basis at 88.41. This was the highest such close on the index since mid April 2006. Two trading days later, the USDX had slumped to 85.06. Then came the recovery, with the USDX spot future close climbing back to 87.16 by December 3. But this week, the USDX has tumbled again. The major damage was done on December 11 when the yield on three-month Treasury paper went "negative" for the first time ever. By December 12, the USDX had fallen to 83.63, its lowest level since October 20.

Attachment 1095

Much more important, the USDX has now traced out a series of lower highs and lower lows since its 88.41 peak three weeks ago. This is a STRONG indication that the huge US Dollar rally which began back in July, fuelled by US capital repatriation and even more by global debt deleveraging, is over.

The current issue of The Privateer (Number 618 - Published on December 7) includes in the "chart files" a point and figure chart of the USDX up to the close of trading on Friday, December 5. Here is that chart.

Here is the same chart a week later to the close of trading on December 12. Please note that the trading range we laid out on the December 5 chart has now been decisively penetrated - to the DOWNSIDE!

Combine record lows on Treasury debt yields across the curve - the short end now actually having dipped into NEGATIVE territory - with a SERIOUS fall on the US Dollar trade-weighted index. What you have is an exceedingly dangerous situation which could collapse very quickly. In this context, a "collapse" would mean a rapidly falling US Dollar and rapidly RISING US Treasury debt yields. In the current financial and monetary situation, no more potentially "toxic" mixture exists.

Gold has reflected this situation. Last week (December 1 - 5), the $US Gold price fell $US 64.00. This week, (December 8-12), Gold has risen $US 68.30 - and that is after a fall of $US 6.10 on the spot futures market on December 12. More on this in the commentary accompanying the $US 5 x 5 Gold chart below.

Consider the fact that the only thing which "saved" US (and world) stock markets this week was the US Treasury stepping into the breach to temporarily fund the "big three" US auto makers after the Senate baulked at the $US 34 Billion bailout package they were expected to grant. Consider further that despite the crash dive in US consumer spending, the November US trade deficit actually ROSE month on month. Consider in particular the third quarter 2008 borrowing figures for the various sectors in the US economy released on December 11. US mortgage borrowing fell at a 2.4 percent pace after having fallen by 0.1 percent rate in the previous quarter. Total US household borrowing fell by 0.8 percent after having risen by 0.6 percent in the second quarter. State and local government borrowing rose by 2.9 percent.

But US FEDERAL government borrowing surged at a 39 percent pace in the third quarter of 2008 - SIX times its rate for the previous three months! That is totally unsustainable. Even to maintain that level of borrowing in coming "quarters" is all but impossible. To increase it at the pace at which federal government borrowing rose in the third quarter would quickly lead to a "Weimar" or "Zimbabwe" episode of hyperinflation with certain currency distruction at the end of it.

Next week, the Fed will make the last of their significant rate cuts, leaving no more room below. US Treasury yields are at the lowest point in their history while at the same time US federal government borrowing is accelerating at a pace never before approached. The US Dollar has fallen below the bottom of its recent trading range. In US Dollar terms, Gold has risen by 9.1 percent this week.

What happens after December 16? The monetary "authorities" at the US Fed and the Treasury will have to resort to "alternative measures", not only to continue their attempt to "unfreeze" the credit markets, but to merely continue to fund the US government itself. Any move in this direction will put added pressure on the US Dollar. It will also make the present non-existent US Treasury yield curve look transparently absurd and almost guarantee a HUGE jump in yields. The only question is when.

The potential for a HUGE jump in Gold given this situation is obvious. Does "safety" reside in the world's reserve currency (the US Dollar) or in the debt paper of the government which issues that reserve currency? Clearly not. That being the case, it must reside in the alternative to ALL paper moneys based upon debt. And that's Gold. Always has been, probably always will be.

Permission hereby given to
quote short excerpts - provided
full attribution is given:
© 2008 - The Privateer
http://www.the-privateer.com
capt@the-privateer.com
(reproduced with permission)

[Aussie]

USD on the way down again . . . gold up US$25 over night.


Attachment 1098

[srowe]

Its very interesting to see that although gold has surghed in us$,it has actually gone down in Kiwi dollars from 1530 to 1478$kiwi oz. Its a complicated game for us kiwis
Gold could go to 1500oz but if the us$ drops enough we could end up getting less kiwi $ if and when we sell!

[peat]

although gold has surghed in us$,it has actually gone down in Kiwi dollars

yes I noticed this for silver as well.

[JBmurc]

Comex concentration hints that shorts are all government now
Submitted by cpowell on Wed, 2008-12-17 00:17. Section: Daily Dispatches
7:14p ET Tuesday, December 16, 2008

Dear Friend of GATA and Gold:

Fear of deflation lately has been convulsing world markets, causing liquidation of most assets into dollar cash and government bonds. Unchecked, that sort of thing must lead to the cessation of all industrial and agricultural production, and everybody freezes and starves.

Having triggered the deflationary collapse by stomping on the commodity markets a little too hard a few months ago, central banks now have desperately reversed their policies and are striving to revive prices by devaluing their currencies and inflating debt away with the "helicopter money" Federal Reserve Chairman Ben Bernanke long had promised to unleash.

Central banks have used gold in currency devaluation to avert deflation before, and the growing concentration -- near monopolization -- of the commercial short positions in gold and silver on the New York Commodities Exchange may be a clue that such a scheme is under way again. This growing concentration hints that the gold carry trade is over and that the gold and silver short positions are now almost completely in the hands of the U.S. government through its agent, JPMorganChase, and that the cost of the gold price manipulation -- what appears to be a controlled retreat with gold -- now can be borne entirely by the government with some of the magic money being contrived into existence.

The higher the gold price goes, the less real metal the government will have to produce on the Comex and the more the gold side of the reflationary policy can be sustained with magic money -- and, perhaps, the more suspicions of market manipulation will subside. But not, of course, with any help from GATA.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

[Aussie]

Its very interesting to see that although gold has surghed in us$,it has actually gone down in Kiwi dollars from 1530 to 1478$kiwi oz. Its a complicated game for us kiwis
Gold could go to 1500oz but if the us$ drops enough we could end up getting less kiwi $ if and when we sell!

srowe, that may well be true over the immediate short term but I very much doubt it over the long term. Gold is not something you trade. It's something you hold as the core position in your portfolio. At all times and in all situations for last 5,000 years it IS and has ALWAYS been money.

Gold had been rising in all currencies except YEN and USD. However, soon enough in my opinion, it will be rising in ALL currencies as all central banks are drastically lowering interest rates, expanding their money supplies and inflating their economies in race to the bottom of the interest rate scale.

Debt created money CANNOT replace real capital created from savings.

I can guarantee you that central banks can create as much paper money as they want and as we have seen all over the world today - they can even guarantee the saving of depositors; however what they cannot guarantee is the future value of that money and what it will be worth and what it will buy in the future.

Edit: Physical gold (and silver) is almost impossible to acquire in 1 oz coin form at the moment. More than a month ago, the Perth Mint stopped taking orders until the new year . . . physical prices for gold and silver are far about the Comex price. Look on Trade Me and E-Bay. Expect to pay a huge premium IF you can find it. IMVHO, gold (and silver) over the next three to four years will be moving to a price that people today would simply not believe.

[ananda77]

Its very interesting to see that although gold has surghed in us$,it has actually gone down in Kiwi dollars from 1530 to 1478$kiwi oz. Its a complicated game for us kiwis
Gold could go to 1500oz but if the us$ drops enough we could end up getting less kiwi $ if and when we sell!

...that is correct for now; therefore, it was a prudent move to buy gold in $US when the US/NZ exchange rate was ~82; then you would not have the problem you have now...

...however, in the current climate of 'US nuclear monetary policy options', it is most likely that we will see a worldwide debasement of paper trash taking a ride to the dumb along with the US$

Kind Regards

[Aussie]

Richard Russell last night:

Now as the Bernanke-Paulson team open the monetary flood-gates in their desperate effort to halt deflation and bring back inflation. Our creditors (i.e. China) must be getting nervous, and they're beginning to let us know about it. The problem for our creditors -- the dollar is now fading rapidly. There's one obvious way to make the dollar more attractive -- higher interest rates. The choice now -- rising rates or a declining dollar. What I'm most worried about is the US dollar losing reserve status. This would mean that our creditors would refuse to take in more fiat Federal Reserve notes, "money" that we can print as we want.

Gold -- I believe that big money, institutional money, is finally beginning to "get it" about gold. Bonds are in trouble, muni bonds are getting hit, the dollar is in trouble, real estate is getting killed, the world is swimming in debt, and we're facing a monster "margin call" on all debt. Where can you find wealth that is not anchored in debt? Only one place -- gold.

Many people, and not just wealthy people, are thinking in terms of survival. How do you survive in a world that won't lend, in a world where nobody trusts anyone else, in a world, where every asset class is in danger? Only one place -- eternal wealth -- gold. This is the concept that has alluded the public and the wealthy as well. It took a situation (as now) where ALL asset classes are in danger before the smartest people on the planet finally "got it." The "last man standing is gold." When the world's asset classes are crumbling, only gold is left.

You can see it in gold's action. While almost all other assets are sinking, gold on a year-over year basis is up 5.6%. So far, this year, gold is up .01%. Nothing else can match gold's performance. Talk about superior relative strength, you're seeing it in gold.

Gold stocks are common stocks. Up to now, gold shares have acted like typical common stocks -- they've been declining with the Dow and the S&P. I've been saying that once bullion starts moving higher on a steady basis, the beaten down gold shares will start acting like entities that produce gold, rather than ordinary mining stocks that sink with the general stock market.