The combination of liquidity circulating through the U. S. economy and a tanking dollar stokes inflation. Investors are increasingly sensing inflation as a threat and seeking a safe-haven in gold.

The U. S. government has responded to the worst financial crisis since the great depression with a massive, more than $13.5 trillion in pledged or potential outlays. Meanwhile, rising unemployment and slumping corporate profits are crimping the U. S. Treasury’s tax revenue.

The credit worthiness of the U. S. government is raising concern and its AAA credit rating is something that cannot be taken for granted. Against this backdrop, it is hardly a surprise that the appetite of foreign governments and investors for dollar-denominated investments has diminished.

Bogus Information to Explain “Market” Moves:
It’s no wonder precious metals investors are unloading despite swearing they would not be fooled into panicking when the financial system began to come apart at the seams. Make no mistake; what we are seeing in the gold and silver markets is an all out attack by the financial powers that increased in intensity on July 15th when it became apparent that Fannie Mae and Freddie Mac are, for all intents and purposes, insolvent. Gold investors have been let down in a big way by supposed experts that comment on the gold and silver markets but can not see the most obvious of price suppressions in the history of the financial markets. Just this morning I read another comment on how the creation of the gold and silver ETFs has been a huge boon to gold and silver.

An unstable monetary system
David Morgan

I was asked to reenact a dramatic scene from the movie Rollover (1981), which is a rather frightening worldwide currency crisis, depicted when oil money is withdrawn from the banking system. Although a total hypothetical scenario, it brings into crystal clear focus what systemic risk is all about. To put this into the proper context, we might visit something seldom talked about today and something I have not used in the past several years at any of the conferences that I present at—namely, the Golden Pyramid, which is attributed to Mr. John Exter.

The HUI finally closed above our key resistance level of 353, albeit just barely. A beautiful ascending triangle has nearly completed and the RSI turned up nicely. We will still wait for next week's open to confirm, but this very well could be the time we have been waiting for. If 353 holds, we don't expect any resistance until at least 420. That move represents a gain of 20% and could happen in a hurry.

Rising prices from years of inflating the money supply are finally seeping into the highly doctored core consumer price index. To hear some of the leading economists debate the inflation issue on TV, with remarks such as asset price inflation being good inflation versus product inflation being bad inflation, should tip us off as to just how far from a solution we are. If this is what we have come to expect from those trained in the field of economics, just imagine how hopeless it would be to try to explain the dangers inherent in today’s economic model to your average investor or consumer. We have currencies worldwide that do not hold value for any length of time in the hands of stewards that merely wish to project the illusion that they are concerned with maintaining purchasing power. Meanwhile, they put on a big show of slowly ratcheting up short-term interest rates to demonstrate monetary credibility while at the same time flooding a reckless amount of money creation into the system to offset the higher rates which are still below actual inflation. Surprisingly, this sleight of hand has well in excess of 95% of the masses so easily fooled, demonstrating their economic illiteracy.

Upfront, I will disclose that I am a technician first and fundamentalist second. I live and die by the saying “Trade what you see, not what you think.” Therefore, all the analysis I am about to lye in front of you is the technical case to buy gold trading instruments.

Lets begin and jump right in!

For the first time since 1981, gold surpassed the $600/oz mark on the futures markets. Gold futures for May delivery climbed as high as $601.90 overnight in New York and peaked at $600 during teh regular trading session. The strength in gold also helped lift silver futures above $12 an ounce for the first time in more than 22 years. The precious metal has been a hot performer, already up 13% in just the first quarter of this year.

Individuals, companies, and financial institutions default on an ongoing basis as part of the rejuvenation mechanism that is both capitalism's hallmark and its comparative advantage; a process Joseph Shumpeter called constructive destruction. Of course, F.A. von Hayek, who graduated from the University of Vienna a decade later than Shumpeter, would not be frightened by piecemeal defaults, and he certainly would not cite this risk as a basis for owning gold. The prospect of systemic default as the culmination of unprecedented financial speculation and leveraging, in contrast, would leave him with no practical alternative. Today the world finds solace in the promise of omnipotent state intervention. In a teaching career spanning three-quarters of a century, Hayek sought to warn others of the value of this promise. Most will wish they had listened.

Some of you may remember the book by Ray Bradbury entitled “Fahrenheit 451.” The significance of that temperature is that it represents the kindling level of paper. With the temperature rapidly rising, more and more are opting for gold rather than paper money. There is little doubt that an excursion to paper money can lead to a period of rapid growth and advancement for the economy and society for a period of time. The big problem comes to a head when paper money is abused without limit. There are mounting signs that we have come to that point and that the temperature in the oven is in the range of 430-450 degrees.

Gold has passed the $500 test, and so far it looks like it will graduate from currency school summa*censored*laude. But Monitor subscribers have just received a warning not to get too giddy about it. There is some indication that the fiat powers are working hard on overextending gold's current run, getting all who are ogling it for investment reasons swept up in the rousing emotion of it all, and then bashing their hopes for good with a devastating blow below the belt line. Well, at least they're trying. You have to give them credit for that. But their success is condemned to mediocrity. Succeed they probably will - but only for a time ... as always.