http://www.kitco.com/ind/Willie/sep212007.htmlWOW! What an interesting couple weeks. A lousy August Jobs Report, even though it exaggerated job growth the upside! The Birth-Death Modlel actually added 120 thousand mythical jobs, including construction jobs and financial sector jobs, both clearly in retreat, a blatant deception. The US Federal Reserve finally was given the smoking gun they needed on a platter to cut interest rates. Martin Feldstein gave the USFed considerable political cover, urging cuts, claiming they were already 100 basis points too high. So gold is breaking out, crude oil is breaking out, the euro is breaking out, the Canadian looney dollar is breaking out, the HUI stock index of miners is breaking out, and the USDollar is breaking down. HATS OFF TO THE CANADIAN DOLLAR, WHICH HIT PARITY, A LONGSTANDING FORECAST OF MINE!!! MAY CANADIAN STOCKS BENEFIT FROM US INVESTORS SEEKING REFUGE!!! The USFed showed wisdom, if not veiled desperation in a rate cut of 50 basis points not only for the Fed Funds rate target, but also for the discount rate. The floodgates are open for monetary stimulus, monetary inflation, and higher commodity prices. Central bankers have given inflation full endorsement and approval, sufficient for a gold breakout to extend to wild levels, like $1000 before mid-2008. Nothing can stop it, because central bankers are held hostage to the crippled US financial system. They have become fast conversions to monetary doves. By the way, the USFed denies they have begun an entirely new easing cycle. This is of course nonsense, as usual. With the disconnect between S&P stocks and mining stocks, any shock wave to mainstream stocks might be beneficial to the gold community.
The key commodities remain gold as a financial meter and crude oil as a commercial meter. My thesis here is a parallel concept, of vital importance to gold (silver too) and its investment arenas. The central banks have a gun at their heads, which dictates that they continue to flood money into the system without rising interest rates further. The extreme banking, bond, and growing economic distress in the United States prevents further rate hikes widely broadcasted by the Europeans, British, and Japanese. They, together with the US, form the core of Western world banking. Rising monetary inflation as directed intended policy, coupled with lower rates in the United States, and stalled rates in Europe and Japan, constitute a near perfect whirlwind for gold. The implications to the USDollar are dire. The fact that a USDX index falling below 79 has not generated much alarm tells us that it must descend closer to 70 than 75 before the alarms are sounded. What alarms are those? Clearly here, the threat is systemic cost inflation in the USEconomy NOT matched by rising wage income. The import of price inflation through the FOREX back door from a weaker USDollar exchange rate will soon become a big topic. Next on the table is bank runs, first in Countrywide, now in England’s Northern Rock, and much more to come!!!
GOLD ON NOTICE TO LAUNCH
Gold, even as it breaks out above the 730 old highs, continues to be misunderstood. Sure, it catches the attention of network anchors, but their explanations and those from interviewed guests fall short of adequately assessment. At the same time, denials persist on the huge damage to be doled out by the USDollar decline. They have noticed the breakout above 700 and cited gold’s favorable technical chart. They have identified gold as an commodity play in the same vein as crude oil and copper, which have all risen in the last couple years. They have mentioned that gold is approaching its beneficial season, as the annual holiday season invites jewelry shopping in the Western world. Nowhere is the monetary reason cited in connection with gold breakout above 700. Stories do appear that the USEconomy should not tumble terribly, since the central banks have reacted responsibly to the banking and bond problems plaguing the system. They report a 20% global money supply growth rate as the proper remedy, but fail to recognize that is precisely why gold is rising. Gold reacts to monetary debasement.
more....