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Will gold begin accelerating as the next financial bubble?

*Dow Theory Letters, Richard Russell, September 18, 2007

“This afternoon the Fed cut the Fed Funds half a percent to 4.75%. This was the first cut in four years. And yes, the stock market loved it. And so did gold. The cut makes gold cheaper to own — the cut is anti-deflationary, better known as inflationary.

The central banks of the world continue to create ever-greater amounts of fiat paper. Fed Chief Ben S. Bernanke calls it a “‘surplus of savings,” but without the “help” of the worlds central banks there wouldn’t be any surplus. The worst offender is the US itself, which continues to run massive trade and current account deficits. These deficits are financed by the rest of the world’s saving. It takes $2.1 billion coming to the US every day to offset our deficits. In his new book, Alan Greenspan complains that he told Mr. Bush to cut back on the spending and to start using his veto, but you know what? Mr. Bush said he’d take Alan’s warnings “under advisement” but sadly, we learn that Bush never heeded Alan’s warnings. Of course, when Bush did cut taxes, the Green man went right along with the cuts. But c’mon, he had to — he didn’t want to disappoint his boss.

At any rate, there’s one hell of a lot of fiat money sloshing around this world of ours, and it has to land some where. First it landed in tech-land, but during 2000 to 2002 the tech bubble collapsed. Greenspan dropped rates to 1%, and that prepared the US economy for the next bubble. This time the money poured into real estate and housing, and a lo and behold, a brand new bubble was created. Alas, the housing bubble popped in late-2005, and today we find that real estate and housing is “correcting.” So where’s the money going to go now?

Wait, I think I know. Some of it went into the equity funds and a lot of it went into commodities. Wheat, soy beans are running wild, and to give you just one example a year ago a bushel of wheat cost $5 bucks; now a bushel of wheat is over $9 dollars as wheat faces its greatest shortage ever. Crude rose to a new high today. Gold is over 700 dollars an ounce. So is this the beginning of a commodity bubble?”


*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.

Aftershock Investor