Monday, November 8, 2010

Those flying metals

GOLD BREAKS ALL RECORDS, $1,409.00 OZ. I won't tell you "I told you so", but maybe I should? I wrote a whole book on the subject of metals and their increasing value due to the fact that all fiat currencies, like the dollar, eventually die. We will soon see $1600 and higher for gold - maybe within a few months. $30 an ounce for silver soon is a given. Copper is close to $4 and eventual new highs. Longer term, gold at $10,000 is becoming a more mainstream prediction. Silver in the hundreds of dollars per ounce is a certainty if gold goes to the moon. 

The only thing that might stop the surge in metals is if Ben Bernanke shuts off the printing press. Even then it' s probably too late since the monetary damage has already been done and is very deep. Without the heroin fix that QE is, the banking system would rapidly collapse, which would still doom the dollar. Our financial system is a mine field with pockets of black holes. It's a no win situation. 

I was a history major in college and found the decline of empires quite interesting. So naturally it would be a no brainer to deduce years later when writing the book that with the death of nations would come the deaths of their money. In the cases of dead empires, the greatest example being Rome, there was a common thread: maintaining empires has always been an expensive and ultimately bankrupting proposition. Add a welfare state, moral decay, an increasing tax levy, etc., and voila  - death of an empire, the destruction of its medium of exchange.

The death knell for Roman money, as Rome was overwhelmed by debt, was its watered down coinage to a state of plentiful but worthless bronze planchets. There were so many that even to this day, 2000 years later, you can buy certain Roman coins for next to nothing. The U.S. experiment is running aground due to huge deficit spending and the unprecedented provision of artificial support of its bond market resulting in massive creation of dollars backed by nothing. It still amazes me that there are many who ignore the past and believe that eventually everything will come out ok and that there shall be no long term repercussions from the actions taken by the U.S. government and the Federal Reserve. With the increasingly rapid ascent of both metals and a smorgasbord of other commodities, we're seeing that the offenders of bad national financial stewardship cannot commit their deeds with impunity and that there are consequences. 

OK, enough with the whole fiat currency death meme. It's embedded in history. This pesky problem (for many) with metals going higher should come as no surprise. Every generation thinks its more clever than the last, but this present society is, or will find that maybe the smarties of today really aren't all that smart, but have been lucky to prosper from what historically has been a shaky fiat foundation. For now, we can still spend our dollars for all sorts of things - both necessities and goodies - but deep down I have a bad feeling about how things are going to end up. 

One other thing I'd like to point out about today. The rise in metals is coming on a day when the stock market is lower. That's a disconnect. The usual pattern has been that QE floats many boats - both stocks and metals. Not today. This will need close watching.  If gold is rising as a currency in its own right - why that would be quite a nightmare on Elm Street for the Fed. This rise in  metals today comes even as the dollar is a little higher. That's a second big disconnect. It's an indication that it's a buyers market in metals and that investors are voting thumbs down to the global monetary system where all currencies are fiat. 

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