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Gold Crosses $1,200 as Dollar Sinks

By: Steve Johnson

12/1/2009 - 15 Comments

Another day, another record gold price as the dollar continues to sink.

The reason that gold has begun to surge over the last month is because the U.S. central bank has committed to juicing the economy with new money to avoid the political ramifications of a deepening recession.

Taken together, the political decisions that congress and the President continue to pursue have changed the rules. 

The rules to protect the value of our currency at all costs no longer exist. The political pressure to face the recession has been too great for this group of politicians and the benefits to create massive inflation too tempting.

The U.S. central bank (the Fed) has kept the interest rate at zero for almost a year and convinced much of the world to follow.  That is quickly changing as many central banks around the world have starting cutting back on easy money monetary policy and began increasing interest rates.

Yet the U.S. central bank is committed to continue to pump new dollars into the economy. The result is that gold is almost guaranteed to continue to climb – perhaps for months.  But the real driver behind the surging prices of gold is central banks, like China and India and Russia that are making plans to purchase gold by the truck load. China alone is planning to purchasing the entire global supply for the next two years.

I read an article today about a member of the Fed who said the U.S. needs to start raising interest rates so that the Fed does not lose its influence as a protector of the dollar.  But central bankers have already began purchasing gold rather then dollars, which is a largest vote of no-confidence that the world has ever seen in the dollar. 

The world has already lost faith in the Fed and faith is all the dollar has.

Ben Bernanke and Allan Greenspan are the biggest crooks the world will ever know as they have destroyed the value of the dollar – which was the Reserve currency of the world.  

The U.S. government looks to be committed to destroying the value of the dollar. Everyone from the Fed bailouts to the President's wars to congress's health reform is committing billions of dollars that do not exist and will need to be created out of thin air. 

Creating money out of nothing is a bad idea, in which no nation has ever recovered from.  Yet, politicians in every office are on a spending spree, while our nation’s debts approach the level that can only be resolved by defaulting.

A month ago I said the market are about to sink, which I still believe they will, but it looks like the Fed is going to continue the party a little bit longer.  I’m amazed they have been able to hind the mountains of debt that are still on the books of the banking system for this long. 

Next year I fully expect 300-500 banks to fail as the Fed begins to pull in the easy money and increase interest rates, which they have already started to do but it will take a few months for the market to respond.

To get in on the gold run, I have switched from GLD to GDX. Both are ETF’s but GLD is based on the price of gold, while GDX is based on common gold miner stocks.  Besides worrying about whether GLD has the physical gold to support the value of the stock, GDX moves with 2x the prices of gold, providing more leverage for the trade.  

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