$600 Gold - $12 Silver

Precious metals climbed to new record levels this week. After crossing above $600, Gold closed higher by about $6 at 587. Silver moved up by more than $.50 to close at an impressive $12.05. Silver has nearly doubled from the $6 level in June of 2005 to $12 plus in less than a year. As of this week, Gold has risen 15% for the year and is up almost 40% in only the past 12 months. Gold stocks were strong for the 4th consecutive week. The XAU climbed about 4 points to close at 145.

Looking over at the precious metals charts: The XAU bottom continued to hold this week as gold stocks climbed higher despite the worrisome gaps left in the charts in the past few weeks:

The parabolic silver trend remained intact within the charts as silver closed above 12 dollars, a near vertical ascent. Silver is extremely overbought and I continue to expect the metal to correct following trading of the new silver ETF. The AMEX CEO was premature in his announcement that the silver ETF would trade this week:

Gold impressed investors around the globe by piercing 600 dollars this week. It continues to rocket above the consolidation break out level that I identified a few weeks ago. Now that it has broken out, it will likely reach the projected $620 point within the weeks and months ahead. However, expect increased volatility as profits are taken from frothy levels.

The major stock indexes consolidated this week. The Dow Jones Industrials climbed only about 10 points to close near the break even point at 11,120, the SPX lost about 15 points closing at 1295, while the Nasdaq remained above support and closed near the its starting point at 2339. Traders once again blamed this weeks lackluster stock market with the 25 year highs in precious metals and crude oil approaching the $70 level.

This week the markets continued their choppy trading action. The Dow Jones, the S&P and the Nasdaq all re-tested their break-out points. The expected broad-based market rally did not occur this week. However, as long as the markets remain above support, the rally could still materialize.

The co-author of Empire of Debt and Financial Reckoning Day explains how the US has unintentionally become an empire. His research indicates that the nation may be entering the dangerous final stages of its empire status. He expects the dollar to collapse along with real estate and precious metals to soar. Here are a few highlights from the show:

Addison points out that Alan Greenspan printed more money than all the fed chairman before him even though he wrote about the significance of a precious metals standard in his 1967 paper, "gold and economic freedom." The new Fed. Chairman Ben Bernanke agreed to uphold the policies of Alan Greenspan, when he was sworn into office. Therefore, the US will continue upon the same path that many Empires have taken in the past. That the government was not trying to conceal its deeds, up until the M3 was removed. The Fed will continue its inflation targeting by picking what is viewed as an acceptable rate of inflation and dollar depreciation.

He researched previous empires when preparing for his latest book. The facts indicate that the US is near the end phase of the decline of the empire. For example, it took 400 years for the Roman Empire to fall apart. He found that we have military in 120 various countries right now which is not tenable. The US continues to use war for an excuse to spend like mad, domestically and globally. It goes back to the Guns and butter policy of President Lyndon Johnson's war on poverty and Vietnam. The result was France's attempt to redeem gold for dollars. In turn, Nixon closed the gold window in 1971 and now were in an inflationary quagmire.

We talked about another statistic from Empire of Debt. That the Dow Industrials has only increased from 100 to 500 since 1929 when adjusted for inflation. This indicates that we have developed a national delusion of wealth. In fact, since Nixon closed the gold window in 1971 the dollar has depreciated at an alarming rate and thus Americans, in general, are poorer.

Addison thinks that, on the whole, the nation is ignoring the lessons of the past. That in todays 30 second sound bite world, Americans are force fed news without substance to calm the masses. That the result is mediocrity and wide spread ignorance to the current economic trends. Thus, the nation is ignoring the unfolding inflation and currency disaster. And even the cognoscente with few exceptions are ignoring the lessons of history and think that its different this time. For example, when he spoke to the former Federal Reserve Chairman Paul Volker, he told Mr. Wiggin that he doesn't understand why the fiat petro-dollar relationship is working but that it appears to be in the best interests of the world for the farce to continue. In fact, it appears to be the lessor of two evils at this point. Addison was alarmed by the great inflation slayer's attitude toward the depreciating dollar as well as his indifference toward gold.

Addison reiterated the myth of capital gains, from the book. We discussed the housing paradox, which illustrates that one is not richer simply because ones house increases in value. In order to realize the gains in a home, one must find someone to buy it. Also, one has to find a new home in order to maintain the same living standard. Therefore the profits gained are most likely expended in purchasing the new home. Addison suggests that many people should sell their home and rent to avoid the housing paradox. Indeed, Addison has decided to rent a home at this point. He also points out that the stock market can have a similar paradox. That when everybody else wants to sell, then the greater fool disappears and there is no one to make the purchase.

Furthermore, he expects that Ben Bernanke will attempt to inflate the nation away from a stock market crash by printing more money and devaluing the dollar, further. He worries that inflation might get out of hand and that there could be excessive price increases in the producer Price Index. Should the PPI accelerate, the Fed will be powerless to halt inflation at that point. He does not believe that the Fed will be able to curb inflation once it really takes off.

However, he thinks that the real estate market is so much larger than the stock market that most people will lose heavily due to high levels of personal leverage. As the prices come down quickly, they will be unable to act fast enough. He is also concerned that few people will recognize that housing prices will remain low for many years to come. As a result, money will flow from such overpriced asset classes into natural resources and precious metals.

Addison is most worried by the housing market and views it as the most important economic concern. Things will deteriorate further the high paying domestic jobs are outsourced to nations where employees are willing to perform the same function at a fraction of the cost.

He thinks that the main stream media and the government do not understand the dollar depreciation problem or the monetary ramifications of its devaluation. The myth of productivity and government spending will continue to befuddle most experts and investors. He is concerned that the nation as a whole does not think that currency crash can happen to the nation.

The huge debt that has been sold to China and other Asian banks in the form of government bonds is a big problem for the Fed. If China decided to dump our debt instruments the Fed would be unable to stop the inflationary consequences. Also he thinks that the Fed. is convinced that they can control the economy as though it was a puppet through monetary policies. However, they cannot coordinate all of puppet strings under the weight of the huge debt bubble. Therefore, it will eventually lead to one disaster too many and the entire house of cards will collapse.

He thinks that the 21st century was a huge experiment in leverage since the gold window was closed in 1971. That there might be an attempt to devise a new type of leverage in combination with the gold standard in the attempt to save the world's economies. Either way, he expects some type of gold or precious metals backing to emerge after the demise of the world's fiat currency system is apparent.

He thinks that what is happening now is very similar to the Japanese economy after the markets fell apart over 10 years ago. That it took fifteen years to work through the debt deflation period. However, the US manufacturing base has been weakened and our national savings rate is at zero. Thus it could take a very long time to deflate the huge debt burden that the nation has accumulated.

He is concerned that silver may have gotten ahead of itself and that it may be within a temporary bubble. He agrees with me that once the ETF begins trading, the silver market will begin to correct quickly and perhaps violently. However, silver remains in a long term uptrend and reactions offer wise investors the opportunity to accumulate a position by dollar cost averaging.

This week, the CEO of US global investors shared his $700 per ounce gold prediction in the years ahead. He pointed out that when oil prices rise, producers seek to move earnings into precious metals to spread risk.

Jim Quinn, a commodity floor analyst with A.G. Edwards noted: "So long as there's the threat of higher energy prices and the dollar remains low, metals could rise even higher," . "From a technical perspective, the market could certainly exceed $600."

A broker in Perth Australia insisted this week that gold could go above $1000 an ounce.

The Golden Guru Award of The Week Award, the Aussie broker for his $1,000 gold price projection. The average of the intermediate-term pundit estimates for gold leads to a single price target of, $767 a decrease of $30 from last weeks $797 consensus.

Chris Waltzek

cwaltzek@comcast.net

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