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Monday, March 28, 2011

Whither Gold?

From the weekly chart above you can clearly see a steady entrenched move upwards in the price of gold. You can also see that gold is near the top of the trend and can easily correct down another 80 dollars without affecting the overall trend one iota. That's not to say that it must, but at some point it will hit the bottom trend line. It always has. Then it will keep heading up.

But what about Japan? What about the middle East? When will go explode upwards in reaction to these dangerous world events?


Gold doesn't react to world events. Gold reacts to financial events. Yes, world events have financial implications. But gold is NOT a safety play. Gold is not a bet that things will go wrong in the world.

Gold is a bet that the current financial solution to all problems - which involves taking on increasingly large amounts of debt - will result in the distress of all paper currencies. Thus gold moves steadily upward over time, as long as this financial strategy persists.

Will gold ever explode upward?

Yes. When an event occurs that makes it somehow clear that no amount of debt will be sufficient to deal with the problem.

What could that be?

It happened two years ago when the banking crisis occurred, and gold shot up 80 dollars in about 30 minutes. Then the markets decided that 3 trillion dollars of additional debt would cure everything. Gold settled back down and continued its slow steady appreciation.

That gold continues upward shows that smart money is worried that debt may not solve all the world's problems. Who is this smart money? Central banks of the world. And little players like George Soros and John Paulsen.

But it's not until all the dumb money joins in (like the dullards who pontificate on radio and TV, peppering their econo-speak with nonsense phrases like "If you will") that gold will explode. And that won't happen until conventional wisdom decides that the debt solution is no longer viable.

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