Tuesday, October 6, 2009

Gold! Record High Knocking on Heaven's Door

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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So far this morning gold has reached $1035.00 in New York trading. This is an all time record high! The previous all time high that gold made was $1033.90 in March 2008. GLD and DGP also hit record highs in pre-market trading this morning. Silver has traded as high as $17.20 so far. While yearly highs are bullish, records highs are mega-bullish, especially for a commodity. It indicates an entire new trading range is being established with limited upside resistance.

The current move up in gold began around noon yesterday New York time. It started when the G7 meeting, which took place over the weekend, made no comments about supporting the U.S. dollar in the communique they released after the meeting. Even if they had, it would only have been talk. None of the countries have the funds to engage in currency intervention since it is very expensive. Their money is already committed for government stimulus efforts. Gold is telling us these stimulus efforts are causing inflation. The U.S. dollar traded as low as 76.22 yesterday, just above important support at 76.00. Any significant break of this level means that 74.00 and then 72.00 will be tested... and then a new all time low is possible.

The gold rally was further juiced by explosive coverage coming from the Independent in London. The paper reported that secret talks between the Gulf Oil States, China, Russia, Japan, and France were taking place with the objective of repricing oil in a basket of currencies instead of U.S. dollars. With the exception of France, all of these countries are major holders of U.S. debt. Saudi and Russian sources later denied the reports. Gold continued to push up after the denials. The implementation of such a plan would be devastating for the dollar. The emerging economic powers, lead by China, are determined to topple the reserve currency status of the U.S. dollar and they will eventually be successful even though it may take several years for them to accomplish this goal.

Meanwhile, in a surprise overnight move, Australia was the first country to raise interest rates. The Australian dollar, probably the best currency for the next several years, hit a new yearly high against the U.S. dollar. Australia's economy is in much better shape than Americas because it is commodity-based. Almost all commodities are priced in U.S. dollars and they go up in price if the dollar weakens. Gold today is telling us that the huge money-printing effort by the U.S. Federal Reserve has weakened the dollar considerably already, even though the dollar has yet to hit a new all-time low against other paper currencies. It did this morning however against the world's most solid currency...gold.

NEXT: Gold Makes History

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

1 comment:

constant gina said...

This is our future in the U.S. until our leadership puts the future of the dollar over the political careers.