Inflation Moves Into Overdrive | ||||
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Market forces Propel Gold and Silver as Inflation Increases and Dollar Slides Lower. Stock Indexes Reach for Final Peaks.
Money and credit conditions are not tight as the Federal Reserve and the United States Treasury remains quite wary of any tinges of deflation. If money and credit were tighter the dollar would rise and gold would sink with stock markets. This is not the case however, as our money controllers continue to force liquidity into the markets through several avenues. This is quite obvious to us as huge piles of cash continue to chase an ever smaller number of mediocre deals all over the world.
The inflated housing market bubble and associated credit and finance simply cannot be squeezed with higher interest rates. Should this occur, a cascade of defaults throughout the smaller banks and housing industry would be the result. In addition, it would take down spendthrift consumers with a vengeance. Trends are moving in that direction anyway it’s just that our Federal Reserve will not further exaggerate the problem by throwing gas on the deflationary fires.
Considering these ideas inflation must increase and probably will do so over a protracted period of time. Former Federal Reserve Chairman Paul Volker has regularly and openly expressed his great concern that this status quo simply cannot continue indefinitely. In his view, reiterated on more than one occasion, he states that “Less than two and one-half years remain before the bell rings.” At that juncture apparently he feels things will begin to disassemble with a global slide into depression. We agree and are planning our business and forecasts with this discussion under constant consideration.
Obviously traders cannot hide under the bed and fervently hope this all goes away. No, we are going to deal with it now and create risk control plans to aggressively increase earnings in precious metals. We will attempt to control all risk with maximum efficiency. The first trading rule is do not lose large amounts of money as it takes a lot of work to earn it back.
Never for one minute believe this is a game. This is deadly serious stuff and we will be the first to say most are playing with fire here and they had better pay close attention or could end up victims of nasty trading disasters.
If it is impossible to tighten-up by raising interest rates it would follow that loose or looser money is here to stay. The resulting inflation cannot keep the money ship afloat forever, but they are giving it the old college try. With tightening being an impossibility where does this end?
It ends when the next bubble pops and that bubble is housing along with its associated derivative finance in REIT’s, housing-backed bonds, Fannie Mae, Freddie Mac, Farm Loan, the mortgage industry in general, and the SBA with all it’s smaller business owners being pushed over the side. Ben Bernanke and Hank Paulson will do their level best to keep control with international bankers. However, they cannot make American consumers buy new homes, take out more loans or find work that is non-existent.
This is pushing on a string and it will not work and they know it. The only choice left is to inflate and prepare to deal with our subsequent bursting bubble.
As we travel through the next three years economic prospects look anywhere from dim to flat out wild. Commodity prices in the view of some are deflating and they are saying that game is over. It is not over at all. We just witnessed the conclusion of Phase One which covered approximately six years. Phase Two will take another five to six years and will be evidenced with ever higher and more preposterous prices, rising commodities, stagnant and falling stocks and temporarily rising bonds. Bernanke’s greatest fear is a consumer buying collapse as this is our last leg under the monetary stool. It’s giving way as we speak.
What’s the Bottom Line?
Nothing is going to stabilize the housing markets. The only thing left for our money controllers is to mitigate the speed of the consumer’s housing, debt, and net worth crash. It is going to be a slow motion smasheroo and nothing can stop it. It can be slowed or temporarily stopped with tricky public relations and fallacious government reports and numbers but the conclusion is set in stone. There are no more bubbles for consumers to blow. The die is cast and we can only wait for the ending to arrive.
All stocks are paper and paper can blow away with the wind. However, for the time being gold and silver shares are going to make some new millionaires and rather quickly, too. Take a look at the neat basing and rally in the XAU chart for this week.
Conclusion
Some of the best portions of the gold and silver rallies lie ahead. This Phase Two time line is the second best part of a precious metals trading cycle with Phase Three being best of all. Some have already earned several hundred percent in junior gold and silver stocks. The next phase speeds up this earnings process even further.
On this morning of November 22, the IMF is openly discussing the sale of their gold to pay off huge losses they incurred lending fiat money to deadbeat nations. While we need to pay attention, in our view the senior IMF decision makers will hold their gold as they recognize current and future values. Nobody in that notorious gang has any deep-seated desire to lose $1Billion through a gold sale like Gordon Brown did in the U.K. Previously, we have read IMF statements issued by their top leaders with the inside power saying no gold will be sold.
Even if they sold some, we would expect to see Chinese or Arab billionaires ready to buy with enormous checks in hand. We also know India is no slouch either as they steadily and readily import more raw gold for jewelry, ornaments and weddings. India announced this week they will be opening their own new gold trading market similar to the Comex, London Metal Exchange, and the CBOT platform. We say the more the merrier. Anything to open gold markets to the public is good news for gold bugs and precious metals in general. –Traderrog
Gold and Silver Index (XAU) Supports at 130 and Rallies to 138.44 above all moving averages. Mining Sector Shows Strength this Week.
Roger Wiegand is Editor of Trader Tracks a weekly newsletter recommending trades in gold, silver and energy providing entry and exit ideas.
