NEW YORK (MarketWatch) -- Last Wednesday's Federal
Reserve debt monetization announcement was the event gold bugs have
been anticipating all their professional lives, or at least since the
last gold bull market blow-off 30 years ago. They are triumphant -- and
terrified.
18 ... U.S. Fed announced plans to begin to buy U.S. government debt
paper with Federal Reserve Notes (a.k.a. U.S. Dollars) created out of
thin air. ... On our Web site, we announced that decision as the 'END
GAME.' That is precisely what it is." See Privateer Web site. Even more
impressive: the reaction of less committed gold gazers. The Gartman
Letter, which had been debating shorting gold a few days earlier,
remarked: "We thought 'quantitative easing' was a matter of time, a
matter of 'when, not if.' Yesterday, 'when' came."
And Gartman bought a significant gold position.
dramatic. On Friday he said: "I've written in the past that if you want
to make 'BIG' money in the market, you have to take an over-sized
position and be dead right on the trend. The last time I did that was
in late 1958. ... I did extremely well on that fateful ride, and I
never again had the nerve to take that large a position -- until now.
gold position now is comparable to my market position back in 1958 ...
maybe 30% of my total worth. Why have I done this again? "(1) I believe
gold is in a major or primary bull market. I believe the gold bull
market is currently in its second phase. This is the phase where
sophisticated and seasoned investors and the funds enter the market.
... "(2) If there is only one bull market in progress, it will attract
broad new coverage and attention -- just as Thursday's $70 rise in gold
did.
"(3) I believe the bear market in stocks will continue erratically and
the deflationary trends will persist. ... Bernanke will stop at nothing
(including massive printing of dollars) in his effort to halt deflation.
shares might start outperforming gold -- after a long phase of dismal
relative behavior. GoldMoney's James Turk said in his Freemarket Gold
and Money Report on Sunday: "The mining stocks remain one of the few
areas of strength within the stock market. ... I particularly like
Friday's action. The Phlx Gold Silver Index. XAU.X shrugged off the
early weakness in gold, and also the late-day slide in the Dow Jones
Industrials and other major averages." See GoldMoney Web site. This
point is also made at Bill Murphy's LeMetropoleCafe. His writers have a
particular fear of late sell-offs in the gold indices because they
suspect it heralds market manipulation. But there was no sell-off on
Friday. See LeMetropoleCafe Web site.
A gold-skeptic recruit to this view is long-term
chartist Martin Pring. In his Weekly InfoMovie Report, he wrote: "The
Market Vectors ETF Tr. GDX is right at this potential reverse head and
shoulders. ... If the shares can complete the pattern with a break
above $37.50, they will probably lead the price of the yellow metal
higher. ...Gold could be on the verge of an historic breakout." GDX
closed Friday at $37.55.
But while the gold bugs are triumphant, they are
terrified about the implications for the U.S. economy. Martin Pring
writes: "The Fed's policy of buying an unprecedented amount bonds, in
effect monetizing the debt, represents an extremely high-risk gamble.
... It will require some uncharacteristically clever sleight of hand
and willpower down the road to preclude extreme inflationary pressures
from building." James Turk wonders: "How bad is it out there that the
Fed would take this big gamble to risk hyperinflating the dollar to try
saving insolvent banks? What does Bernanke see that he would expand the
Federal Reserve's balance sheet by another $1.2 trillion? What is he
not telling us?" BECOME A BULLIONAIRE SIGN UP