General Market Bullish Serge - Precious Metals Hit

Yesterday was a banner day for the DOW. It advanced across the 50-Day Moving Average. From the technical perspective, this is very bullish. Obviously the buying which fueled the move was the Fed Reserve rate cut of 3/4%.

During the same period of time, the precious metals suffered as there was selling to gain funds to invest in the general market. This was exactly what the Fed Reserve was hoping. The bashing of gold was, I am sure, celebrated in Washington.

However, when we consider the extremely rapid recent serge of gold to above $1000 per ounce, it was due for a correction or consolidation before further climb. Those who have been recently introduced to the precious metals suffered the most. Of course, I suffered some on my purchases during this week. Remember, that I always suggested incremental purchases with each correction. That is, one should use caution and not commit the entire amount of dollars on hand, but move in with small purchases to add to the portfolio.

What is going on with the Federal Reserve's action? There is a theory within Keynesian Economics on recession and inflation.
FIRST: Recessions are very difficult to control, so the economy must be flooded with enough (unbacked paper) currency to push spending to higher levels of inflation (actually, price inflation).
SECOND: Inflation is easier to control by decreasing the flood of currency and increased taxation.
THEREFORE: Inflation (price inflation) is to be greatly preferred over recession or depression.

Thus, it is no wonder that governments and central banks take these actions. With ours, it is inflate or die. They do not care about the value of the dollar. In a centrally controlled economy such as our welfare government, it seems to those in power that there is no other way. Actually, for a time this has historically worked in a number of nations. I and many others have wondered over many decades at the way it has worked in America. How long it will continue to work only the Triune God of all knows, as He continues to pull the strings of all that occurs.

It is also true that, historically, nations which have gone this route have paid dearly for their intervention into the market place with paper currency and over regulation. Governments always expand with greater and greater intervention into the market place and into the lives of individual citizens and businesses, because they assume to role of the Messiah. Little do they realize that they are claiming divinity which belongs to no earthly power. There will come a day of reckoning.

There is a possibility that there will be a collective central bank movement to strengthen the dollar in the near future. This is done by buying dollars with their own currencies. The banks have acted in concert several times to do just this. It has worked from time to time. Why would they do it? It is to their self-interest. Remember, most of them have a large number of dollar instruments in their reserves. As the dollar falls in value, they are suffering great losses. The volatility of the dollar is of great concern to the banks around the world.

The unknown in the new international financial arena is the presence of the sovereign wealth funds, particularly of Asia and the mid-East. These are slushing around the world, including America, to purchase assets: real estate, businesses, commodities, and securities of all types. We will have to wait and see the impact of this additional currency into the market places of the world.

Gold has plunged today to 944.10 and silver to 18.32. However, we must remember that at these prices, gold is up over a month ago by 38.90 and over a year ago 292.20 while silver is up 1.31 for the month and 5.13 for the year. That is still a rather handsome move.

I am cautiously waiting for signs of a bottom in this correction before committing additional cash.

On the currencies, the Swiss Franc has been a big winner over time. It has now exceeded par with the dollar as have both the Canadian and Australian dollars.

Stay focused upon our Lord and Saviour Jesus Christ and rest in His love for His people.

Best to each, Doug