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With
China’s central bank in tightening mode, the bad guys had their best
chance in months to knock down the price of gold last week. Their best
efforts proved feeble, however: When
the dust had settled, gold quotes were down just five percent from the record
$1388 peak recorded on October 14.
And although Silver fared somewhat worse, falling eight percent over
the last seven days, even in the throes of this relative weakness, Comex Silver resisted getting shoved lower for more than
a single day at a time.
“Up” days alternated with “down” days,
suggesting that the playground bullies of the precious metals world –
i.e., Fed-sanctioned bullion bankers -- were having trouble suppressing the
price of precious metals, gold in particular. Indeed, if last week’s moderate
decline was the worst damage they could inflict on bullion when the news was
on their side, then we shouldn’t doubt that precious-metal prices will
soon be bounding higher once again.
The
announcement last week that China’s central bank would boost the yuan lending rate by 25 basis points was like a kick in
the teeth to global markets that had been wafting blithely skyward on the
prospect of perpetual global easing. China has good reason to shun the party,
however, since, even in weak fiscal quarters, GDP growth is running at eight
percent or better. Last week’s announcement was an attempt to rein in
speculation and to quiet inflation, and it should have surprised no one that
bourses around the world reacted hysterically, as is their entrenched habit
even when the news is stale from anticipation. This time the dollar’s
response was worse than merely hysterical, however, since the greenback rose
sharply on news that should have caused it to fall (i.e., stronger yuan = weaker dollar). Go figure -- and heaven help us if the
prop-desk yobs who drove the dollar higher did so
under the pale illusion that they were fleeing to safety/quality.
Mass
Delusion
Whatever
the case, gold and silver came down because speculators believe that China,
the world’s remaining economic engine, will continue to tighten in the
months ahead. That would be deflationary, the thinking goes, and bullion
prices should ease in anticipation.
The thinking is wrong, however, for the simple reason that the move
toward fiscal austerity around the world, especially in euroland,
is no match for the rampant monetary stimulus that is being used to counter
the worst global recession since the 1930s. Beggaring-thy-neighbor via currrency devaluations is not merely in vogue, it is the
Tulip-o-mania of these times. If this trend is capable of causing the price
of gold and silver to fall, then pigs can fly and the world is entering a
period of unprecedented peace, prosperity, harmony, with high-paying jobs for
everyone. If you believe this,
then you should be hoarding all the paper money you can get your hands on,
stuffing it in your mattress, and in Treasury Bills and Notes that yield
almost nothing. For our part, we’ll put out trust in gold and silver,
which for the last decade have steadily climbed in value no matter what
investment story was in vogue; regardless of whether it was inflation or
deflation that we feared; and even as the world’s financial system has
edged toward the deepest imaginable abyss.
Rick Ackerman
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Rick Ackerman is the editor of Rick’s Picks, a daily trading
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