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Wednesday, April 25, 2012

When will gold rise again?

To understand when gold will continue its bull march you have to understand how the US economy works.

Here's how:

A) The Fed prints money and gives it to the banks that own the Fed.

B) The banks gamble the money in the risk markets - but mostly the stock market.

C) Corporations announce terrific earnings - (excluding: "one time" losses from poor business decisions, the cost of new plants and equipment, and the all the massive debt and debt service they've built up over the last 40 years)

D)  As long as the stock market doesn't tank the game continues and the economy appears to be holding up.

During this entire scenario the rise in the gold price is managed.  Over time gold appreciates slowly as the value of printed dollars drops - with long periods of consolidation.


E) A "shock" hits the economy.  It can be anything.  A terrible trade - an act of terrorism - a natural disaster - a foreign crisis - a string of surprisingly horrible data - an implosion in a derivatives market - a massive fraud is uncovered - a policy error - make up your own shock.

F) The stock market drops. 

G) The Fed is forced to announce official "Easing" ie: Money Printing (it's actual permanent state).

H) The risk markets are supported (or not - at some point).  Gold soars.

Where are we in this cycle?

Nobody knows - because nobody can predict the next "shock."  But "shocks" occur regularly and frequently.  That's the nature of the human condition.  Even the Fed can't change that.

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