GOLD DISCONNECTS FROM USDOLLAR
Jim Willie CB February 5, 2009
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Jim Willie CB is the editor of the "HAT TRICK LETTER"
Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.
The gold price has finally disconnected from its nemesis, the USDollar. This news should be read as the coming of spring after months of wintry torment, or as the sighting of land after 30 days adrift at sea in a derelict vessel. From 2002 to very early 2008, the gold price had risen from the massive speculative fervor that swept the United States and Europe, whose economies had been supplied largely by Asian factories. The mines from Latin America to South Africa to Australia greatly aided the process. The very paradoxical event of the USDollar rising this past autumn amidst truly horrendous news, one disaster after another, one major bank failure after another, one nationalization of a large financial institution after another, makes the disconnect all the sweeter for gold investors. That set the stage for a powerful gold price move. Imagine a notable rise in the buck, based upon broad negative news in August and October!
The gold price withstood the counter-trend US$ rally. While the buck has undergone a retest, gold has risen and not looked back, as though the US$ has become an irrelevance. IT HAS! This is great news! We are at the doorstep of a powerful gold rally, one that will see a silver rally accompany. New highs are soon to come! We are the doorstep of a powerful gold rally on a global scale, where gold rises in ALL currencies. The gold move in US$ terms is last, but guaranteed! The fundamentals of the US$ are fifteen steps beyond miserable. The technicals in the chart are looking tremendous. The psychology is aligned for a powerful move on a global scale, undeniable even to the most ignorant commentators in the financial press.
GOLD BREAKOUT IN FOREIGN CURRENCIES
This is the biggest story in England not told, the gold breakout. True to form, the gold price has seen a powerful breakout in the nation whose financial foundation has been destroyed more rapidly than any other nation on the planet, except the Untied States of America. After a serious hesitation in December, when the gold price in London experienced a spastic episode, unsure of its direction, probably endofyear squaring, gold has launched into a powerful breakout. The most vivid and strongest breakout for gold in foreign currencies has been in terms of the British. The pound sterling has suffered a severe pounding, precisely as forecasted in the Hat Trick Letter for over a year, when at over 200 in late 2007, my forecast was for a step by step painful decline below 150. The sterling currency has no advantage of lift from liquidations or payment of Credit Default Swaps, nor a hunkering down into the global reserve bond, like the USDollar does. One should begin to ask the question whether England, the Untied States, and Mexico will be the next failed states behind Iceland!!! The gold in pound sterling chart provides a vivid preview of the gold price in US$ terms, soon enough.
A similar graphic can be seen for gold in terms of other major currencies. Gold in euros, gold in Swiss francs, gold in Aussie Dollars, they are all in breakout. The laggard is the gold price in US$ terms, since the global financial breakdown has led to bizarre counter-intuitive demand for USDollars. Gold will next benefit enormously from the movement out of USTreasury Bonds, which have topped. No such thing exists as Flight to Quality or Flight to Safe Haven. The only flight of money is out of bonds not guaranteed by the USGovt, the German Govt, or the Japanese Govt. THE DEATH OF YOUR NEIGHBOR DOES NOT JUSTIFY A CLAIM OF YOUR OWN IMPROVED HEALTH. We are witnessing precisely the effects of competing currency wars, the competitive devaluations, the beggar thy neighbor. The financial press has yet to learn this concept. But then again, they are paid not to do so!
MASSIVE MONETIZATION DEAD AHEAD
The funding requirements for the USGovt are fifteen steps beyond colossal. A nasty surprise has already come for those who issue USTreasury Bonds and conduct auctions, A VERY BIG NASTY SURPRISE SO BIG THAT THE MEDIA NETWORKS REFUSE TO MENTION IT!!! The details are in the February Hat Trick Letter, and relate to angry, defrauded, and themselves defensive creditors. Foreign economies must tend to their own lands first and foremost. They also react to fraud on a scale perpetrated against them never witnessed before in human history. Find a time in all annals of history when national savings have been solicited and defrauded on this scale by another nation. There is none! This is the legacy of the Untied States, or better yet Wall Street, which has taken control of its host the USGovt like a cancer. The combination of unfettered usage of federal printing presses to create (and thus debauch) its money, together with abusive bilateral hostile actions directed at creditor nations (like China), together with bailouts & rescues soon to reach $10 trillion, together with continued Wall Street control of the USDept Treasury (see Goldman Sachs), together with a steady stream of major monster fraud cases (see Bernie Madoff), WILL SEND GOLD & SILVER NORTH IN PRICE. Lastly, the rising USTreasury Yield Curve also heralds a rising gold price, as the vile specter of monetization has begun to harm the 10-year and 30-year USTreasury Bond integrity.
Just a quick note on the Madoff victims. A closer look of supposed victims reveals his co-conspirators. They are framed as victims by a subservient press that has no desire at all to publicize where the stolen money is stored. It is in the banks of an allied nation that is beyond reproach, bordering the Mediterranean.
CANNOT MAINTAIN US$ & USTBOND BOTH
After the USDollar enjoyed a perverse lift in the early autumn months from a fundamental disaster and detailed wreckage, it suffered a swoon in December of serious magnitude. The fall from 88 to 78 in the space of four weeks qualifies as the floor suddenly disappearing. The event carried with it a billboard message of extreme volatility and growing instability to come, much like a highway with signs of dangerous curves before a cliff. Step back to see that in the autumn months, the USDollar rose from the critical support in the low 70's into the upper 80's, on a senseless rise. At the same time the USTreasury Bond complex also rose in principal value as bond yields marched toward 0% on the short end and toward 2% to 3% on the long end. The Zero Interest Policy was much decried of Japan. Now the US boasts the same.
Many astute analysts have declared that the Corrupt Powerz that control the vast manipulated machinery cannot conceivably keep both the US$ and USTBond levitated for long. One had to fall. My conclusion was simple. Any strong selloff of the USTreasurys, pushing bond yields higher, would trigger a credit derivative sequence of events that would result in overnight bank failures and collapse of entire financial markets, starting with a JPMorgan meltdown. It would occur much like a financial nuclear bomb. So the victim will be the USDollar, clearly, by default. As the US$ falls to unthinkably low levels, many banking and governmental leaders will proclaim the wondrous advantages of increased competitive position for exports. That would indeed be beneficial if any American industry were left standing. Also, the other side of such a position is a sudden thrust down the global staircase for the USEconomy into the Third World. The consequences of a severe US$ decline carry with it all the attendant disruptions, the interrupted supply chains, the vast unemployment, and the highly likely isolation. Foreign creditors are soon to vanish, as the Untied States would become a widely acknowledged pariah. America had better make preparations for the Third World, where credit strangulation carries a bitter cost. This will occur only after new global currencies are introduced in January 2010. Forget export advantage. Prepare for non-existent credit, or very expensive credit, the hallmark for Third World nation finances.
ENTIRE TRIANGLE TO SHATTER (US$-USTBOND-GOLD)
For two decades or more, the triangle is the name given by me to the vast financial complex that has supported a mindnumbing corrupt system of fiat currencies led by the USDollar. In fact, it is more like two important triangles exist: the US$-USTBond-Gold triangle, and the US$-USTBond-Oil triangle. The defacto Petro-Dollar enters the equation, or commands its own equation. A suppressed gold price has been the norm for a long time, engineered by selling forward two years worth of global production in the futures contract market, aided by sleepy regulators at the Commodity Trading Futures Commission. The CFTC regulators are even more corrupt than their counterparts at the Securities & Exchange Commission, if that is possible. Enter the vast machinery again by JPMorgan, to keep the USTreasury Bond levitated. Their principal device is the futures contract, which offers nice leverage. The crude oil triangle is maintained by conversion of OPEC oil revenues into USTreasury Bonds. It too is under great strain with a lower crude oil price, down over 60% since last summer.
The secret weapon of mass destruction in the last decade has been the Interest Rate Swap. Notice how the dreaded 'Bond Vigilantes' are all dead, run out of town, or converted to blacksmiths. The IRSwap device enabled JPMorgan to use lower Fed Funds rates and immediately associated short-term USTreasury Bill yields in order to leverage down the long-term USTBond yields. The IRSwap extended the reach of JPMorgan and the US Federal Reserve to control long-term rates. Fires are burning hot in the JPM basements, complete with visible smoke, since 0% yields put nearly infinite pressure on the leverage devices. This is pure physics. USTBills have approached a near infinite value, thus exerting unsustainable pressures on the IRSwap leverage. The end result is a shattered triangle that reined supreme for two decades. The powerful machinery is broken. Like horses no longer held back by weighty stagecoaches loaded with burdensome ballast and overweight men in stolen suits, the gold price will be released. The crude oil triangle will be broken also, but later.
INTERPRETATION: SHOCK WAVES COMING
The rise in the gold price during a US$ counter-trend rally foretells of a strong message. THE GOLD PRICE IS HEADING TOWARD NEW HIGHS. ALSO, THE USDOLLAR IS SOON TO EXPERIENCE SHOCK WAVES. Patience for gold & silver investors will be greatly rewarded. Numerous stories support this claim. Heavy reliance upon the printing press, as in monetization of USTreasury Bonds, is the biggest immediate threat to paper money, and the biggest immediate positive prospect for gold. The USFed has already announced this new policy, as they will purchase USTreasurys from expanded money supply. Any reluctance by foreign creditors to participate in auctions (see the Hat Trick Letter proprietary reports) will exacerbate the movement. Then there is the planned launch of the new Persian Gulf gold-backed currency in early 2010, which should act as a nuclear bomb against the USDollar in less than one year. That is the hidden motive for unprecedented attack of hedge fund crude oil positions by the sponsored Wall Street gangster bankers, aka banksters. That label is well deserved. Their crimes and protection given by USGovt authorities has been clear for the entire world to see. It has been revealed in plain view. Anyone who denies the criminal element in Wall Street, tied with ropes five feet thick to the USGovt ministries, is hopelessly blind at best, and compromisingly moronic at worst.
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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com