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Is gold out of the control of the Fed and Wall Street?

*Dow Theory Letters, by Richard Russell, April 20, 2011

”The dollar is doing just what the Fed wants it to do — it’s sinking, sinking and sinking more.  Sadly, the great American public doesn’t understand what’s happening, and if they were told they couldn’t care less.  Of course, what the public does notice is the painful result of the dollar’s bear market.  The result is seen every time Joe six-pack and his wife hit the neighborhood super-market.  The rising prices are a shocker.  And if the price of your favorite cold cereal has not been raised, there is less of the cereal in the box.  Then when Joe has to fill up the buggy to get home, he groans as he sees the gasoline tab. ‘Sixty bucks to fill up this lemon. I’m going to get a motorized bike,’ growls Joey.  ‘This country is going to hell in a hand-basket.’

The US has been getting away with spending more than it takes in ever since World War II.  It’s a process that isn’t sustainable, and if a process is unsustainable it will end.  The US’s habit of spending more than it’s paying for has finally hit a brick wall.  The wall is the demise of the famous ‘Yankee dollar.’  In order for the US to live over its head, it must borrow.  Half of the US’s borrowing comes from foreign sources.  And that’s a problem.

The fiat US dollar has no fixed value.  It’s worth must be measured against other currencies.  ‘The dollar is worth so much in relation to the Brit pound — or the dollar is worth so much in terms of the euro.’  Our foreign creditors, many of whom are loaded with dollars, keep a sharp eye on the comparative value of the dollar, and they’re now frightened and mulling over the credit-worthiness of the US.  The recent warning from the S&P rating agency heightened our creditors worries about both the US and the dollar.  The disgraceful battle between Obama and the Democrats vs. Paul Ryan and the Republicans is further raising the fears of our creditors.

With commodity inflation now out in the open, Fed head Bernanke has a problem.  His absurd defense is to refer to ‘core inflation’ (without the cost of food and energy).  Bernanke announces to the world that there’s ‘no inflation,’ and besides if there is inflation the Fed can end it any time they want.

What Bernanke and the Fed can not control is the tell-tale price of gold.  As I write the battle is on to keep June gold from closing above 1500.  Yesterday June gold hit an intra-day high of 1500, but can it close there?  ‘Ah,’ Bernanke must be thinking, ‘If I could only control the price of that damn gold.’

Yesterday, as I looked at my computer, and I could see the fierce struggle that was going on as gold whipped up six dollars, then five minutes later it is up a dollar-fifty.  There must be a powerful contingent (perhaps backed by the Fed) that is desperate to keep the price of gold DOWN and below 1500.

But alas for the Fed, gold is traded internationally across the face of the planet and 24 hours a day.  Gold is out of the hands of the Fed and Goldman Sachs, and it trades everywhere and where it wants.”


*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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