Gold Rallies VS. Major Currencies

February 19, 2009 Gold Stocks, Inflation, Politics No Comments

Global “stimulus” is the currency of the day as gold rallies versus major currencies. A global economic crash is leading the way as gold rallies versus major currencies.

The Dow is currently down 16 at 7,539, the NAS down 4 at 1,463, the dollar is down .72 (.93%) at 87.33 and gold is following it’s newest trading buddy the dollar, down $4.80 at $978.70. It seems to be about profit taking for gold at the moment. Gold has risen 5% for the week and a little pullback here would help it before it begins it’s assault on $1,000.

When last we heard from President Obama he was saving the U.S. from the mortgage crisis by ponying up $75 billion for helping people who are in arrears in their primary residence mortgage. Let me see if I have the concept of the program down correctly. If you live in a house that you can’t afford and have gotten behind in your payments because you can’t afford that house, you get a government mandated markdown in your mortgage balance because the government can force the bank to do that because they lent the banks bailout money. If you lived within your means and paid your mortgage you get squat. You not only get squat but you have to subsidize that handout through higher taxes and the loss of purchasing power through a devalued dollar. I get it. Everything is beautiful, in it’s own way.

Every other word from the political boobs in Washington is crisis. After a while, if you say it enough, you actually get one. We are rapidly on our way to a major crisis which can be tied directly to the “predatory legislators” in Washington.

Gold’s Transition to he Currency Of Last Resort

Gold is reflecting this global disconnect from reality by rallying against major currencies. As gold de links from the commodity side of the equation and moves more forcefully into the currency side we will see wider and wider spreads in the daily price action of the metal. To put it simply, gold is taking on it’s rightful roll as honest money or the opposite of debt. It is being recognized as the storage of value of last resort.

Because the governments of the U.S., Japan, China, Russia, England and Europe are all throwing money in to “stimulus packages “, gold is rising as their currency devalues. The world central banks have committed an estimated $20 trillion worth of stimulus and financial bailouts with the US alone having now committed over $10 trillion to fighting the world financial chaos. As these funds work their way through the system gold will reflect this on going assault on the world’s financial system by increasing in value as the various currencies devalue.

This trend with gold rallying against major currencies will continue for the foreseeable future because this financial crisis is just getting up a head of steam. The conditions in Europe have gone south rapidly which is generating wide spread skepticism about the long-term viability of the Euro itself, leading to increased gold purchases as people run to gold to avoid the worsening situation in the Euro. Spain, Greece, and Ireland, are mired in the global banking crisis and it looks like Portugal and Belgium may be the next dominoes to fall. The Euro is in trouble and all of the hopes of unification that came with it may be going up in smoke. The Die Zeit newspaper wrote on January 29th,

“The global banking crisis is widening the interest rate gap between the Euro countries. Serious economists are wondering when the first state will go bankrupt. After that it’s only a short step to catastrophe – the collapse of the currency union.”

Ireland, nick named the “Celtic Tiger”, has not been immune to this crisis by any means. Ireland has been in boom mode since the late 1990′s, but the Irish economy slipped into recession last year for the first time since 1983. The examples go on and on. This is not a simple recession, this is a global crash. Because the problem with the derivatives market is a global phenomenon this will not stop until the derivatives market has been cleansed and it’s effects removed from the system. When this will turn around, I can not say, but I do know that the U.S. will lead the world out of this mess. The U.S. is the only economy large enough to lead the world out of this financial black hole. In order to do this we will need to replace the boobs that currently hold power in the U.S. That decision may come much easier to the public after two more years of pain.

Gold is the answer to survival in this crisis. Physical gold provides purchasing power even when the currency fails. Gold stocks provide leverage to the price of gold and offers the opportunity to garner profits in a market where most stocks are down. The gold stocks are still lagging behind their July ’08 highs, but they are rapidly gaining on them. Soon the gold stocks will out perform physical gold as more and more investors realize that they are the one sector of the market that is gaining. BUY GOLD. BUY GOLD NOW!

Till next time, good luck and good trading!