You have a personal choice to make everyday as to how you keep your savings.  Do you keep it in cash?  Stocks or bonds?  Do you keep it in a CD or in a savings account at the bank?  Or do you keep it in physical gold?  When you keep it in physical gold, in your possession, you have essentially removed your money from the system; a system in which you have no control, a system that is manipulated by central bankers and the federal government.

There is a fundamental difference between physical gold and paper assets (or digits on a screen).  One is a physical piece of gold that has intrinsic value, and has had value for over 5,000 years.  On the other end of the spectrum is wealth that is stored as digits in an electronic account in a computer system.  If the dollar collapses only one of these is safe.

The way our government is treating the economy today is massively irresponsible.  The more money the government prints, the more the value of the dollar is eroded.  It has become obvious over the past few years that the irresponsibility has run rampant.  From the dealings of Bear Sterns and Lehman Brothers to the failure of BP to buy a part that could have prevented the mess in the gulf.  In the world we live in it has clearly become all about the money.  Do you trust these types of people to have your best interest in mind?  I think not.

If you own physical gold you are saying I don’t trust the government and the Federal Reserve.  If you have money in the system you are supporting that system.  Now I am not suggesting that you pull everything out and live off the grid, but I am saying that everyone should own some physical gold for financial insurance.  Sure you will probably see great gains by many experts’ expectations, but it is more about protecting what you already have, and building wealth as secondary.

He who controls the assets has the power.  Gold coins in your hand or numbers in your bank account, which one is safer?  Which one will you choose?  Weigh your options, do your research and decide for yourself what makes most sense.

Dr. Marc Faber was recently seen on CNBC in a piece they called “Governments will Bankrupt Us.”  Dr. Faber is editor and publisher of The Gloom, Boom and Doom Report and is a frequent contributor to CNBC.  He states that he is extremely bearish on the world.  The governments around the world are taking over in conjunction with inflating the monetary supply.  The printing of money is a temporary patch to the economy which is giving us a bull market in stocks.

He further states that the bull market in stocks will continue for a while due to all of the stimulus, but in the end will ultimately bankrupt the sovereign nations.  “If you print money like in Zimbabwe… the purchasing power of money goes down, and the standards of living go down, and eventually, you have a civil war,” he added.

Dr. Faber says that instead of holding cash people should gradually accumulate physical gold and silver.  “Paper money will go down relative to precious metals. So in that environment, I think you…should all accumulate some gold.”

This is what I have been telling people all along.  Whether the world collapses or not, everyone should own physical gold.  Gold protects people from the effects of inflation and hyperinflation.  Currencies, especially fiat currencies, fail.  It is a matter of time before the U.S. Dollar will suffer the same fate.  Dr. Faber is sometimes dubbed Dr. Doom, but he points to things that we should all be concerned about… Money Printing! 

We have watched nation after nation throughout history take on this strategy and it always eventually ends in failure.  Look at Germany from 1919 to 1923.  The government was printing money like crazy.  In 1919 one ounce of gold was worth 170 Deutsche Marks.  By the end of it all in November of 1923 one ounce of gold was worth 87 trillion Deutsche Marks.  So if you buried an ounce of gold and 170 Marks in 1919 by 1923 your gold would have maintained its purchasing power and your Marks would be worthless.

This type of money printing is disastrous for people with savings, and the U.S. government has increased the money supply by 2.5 times in the past 18 months.  Buying gold is a great strategy to protect what you have spent years accumulating.  If you do not own any start accumulating before it is too late.  Get in while gold is still cheap.

http://www.cnbc.com/id/36704832/Governments_Will_Bankrupt_Us_Marc_Faber

Ron Paul spoke with Fox news about another crisis that is coming.  He states that we have a debt monster that is growing and that the U.S. is much worse off than it’s ever been.  He also states that we are headed down the path that a lot of the countries in Europe are on.  He believes that the foundation has been built for a currency crisis within the next 2-3 years, and that we will see massive amounts of inflation and disruption in the U.S.  What does he do to plan for the coming crisis?  He buys gold to protect his family.

Ron Paul has long been known for his candidness with his beliefs.  He is thought of by many as the man that this countries needs to get us back on the right track.  When he speaks people listen.  He has been an advocate for 10 plus years of not passing any bills unless we have the money to pay for it.  If this thinking was spread across congress we would not be in the predicament that we are in today.  Our debt is over $12 trillion and growing rapidly.  Bernanke has increased the nation’s monetary base from September 10, 2008 to March 10 of this year, from $850 billion to $2.1 trillion.  That is 2.5 times in 18 months.  This has never been done in U.S. history.

Jim Rickards recently wrote in a piece called Debt Denial, “The sovereign debt crisis has
crossed a threshold.  It’s no longer about economics.  It’s about math and a complex system whose dynamics tell us there is little time to avoid catastrophe and almost no exit. Going forward, elections and policies will matter less as the debt plague takes hold and dictates hard outcomes.  It is the case that real debt cannot be repaid through any feasible combination of growth and taxes.”

Between the words of Ron Paul and Jim Rickards we are in a dire situation that quite possibly cannot be reversed.  Inflation, hyperinflation and collapse of the U.S. dollar are possibilities that loom over us everyday.  They both endorse gold as an individual’s solution to protect oneself.  The time to own gold is now.  Many experts believe gold is going much higher before this bull market is over.  But that is not the main reason anyone should own it.  Gold is first and foremost a form of financial insurance, and should be treated as so.  Read more on the different types of gold and how to acquire them and get yourself protected.

The derivatives market is a looming omen whose default could collapse the entire world’s economy.  They are so dangerous that Warren Buffett once declared them as weapons of economic mass destruction and stated that he would never be involved in them.  Here are some of the main categories:

1. Credit default swaps
2. Interest rate derivatives
3. Commodities derivatives
4. Equity linked derivatives
5. Over-the Counter derivatives

Derivatives are securities whose value depends on the underlying value of other basic securities and associated risks.  They are essentially leveraged bets.  A buyer of a derivatives contract only needs to put up a fraction of the value of the contract in order to purchase it.  Because of this, the dollar amount that currently exists in the derivatives market has been allowed to mushroom unchecked for decades.  It is currently estimated by the Bank for International Settlements that the amount outstanding in the derivatives market is $1.144 Quadrillion USD. ($1,140,000,000,000,000) That is $1,144 trillion!  Let’s put this number into perspective by looking at the outstanding value of some other assets.

1. GDP of the entire world is $50 trillion $50,000,000,000 (derivatives market is 22 times larger)
2. Real estate market for the entire world is estimated at $75 trillion (derivatives market is 15.25 times larger)
3. The world stock and bond markets combined are valued at $100 trillion (derivatives market is 11.44 times larger)

What is scary about this market is that it is unregulated, it has no universal standards, deals are made with private contracts and it is not transparent.  A collapse in the derivatives market would make the housing collapse look miniscule in comparison and yet it continues to go on unchecked.  A collapse in this market could occur because of catastrophic events like cascades of bankruptcies and nationalizations, or geo-political or geo-physical events.  If the party who accepts this “contract/bet” goes bankrupt this would make the synthetic value of the contract/bet become real money, therefore any large OTC derivative financial firm or brokerage house must be bailed out or taken over by another similar company.  Didn’t we just see this happen with AIG and Bear Sterns? Just imagine if all the bettors at the Kentucky Derby went to the cashier’s window after the race and they were told that the track is bankrupt.

The derivative market needs to be reigned in.  It is very dangerous to not only the financial markets here in the U.S. but its tentacles have stretched to financial markets all over the world.  Its value is about $190,000 for every man woman and child on the planet.  Regulations need to be put in place, and even then it will still be a dangerous market.  Just another reason why everyone needs to own gold in their portfolio.

Gold closed at $897.90, up $41.10. The dollar closed up 0.03 to close at 85.52. The Dow closed at 8077.56, down 45.24 and the Transports closed at 2965.89, down 66.71.
Ex-Fed Chairman, Paul Volcker was introducing Tim Geithner at the Senate Confirmation Hearing of Tim Geithner for Treasury Secretary. Of Course Geithner was the Former President of the Federal Reserve Bank of New York. I think what Volcker said was the story. Again, Volcker was the Federal Reserve Board Chairman from August 1979 thru August 1987. The Wikipedia had this to say about Volcker, “Volcker’s Fed is widely credited with ending the United States’ stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983.”

Again, I am more interested in what Voclker said, than I am Geithner’s appointment. Volcker said, “You know a good many years have past since I last appeared before this committee, but during all of that time, there’s never been a more critical time for the American economy and particularly for financial stability. That’s true just not in the United States but globally. To put it starkly, we are in a serious recession with no end clearly in sight. The financial system is broken. It is a serious obstacle to recovery. There is no escape from the imperative need for the Federal government to come to the rescue, to right the economic and financial ship. Over time the hard fact is that several trillions of dollars will be necessary to be committed in a combination of budgetary expenditures and various guarantee insurance programs and extensions of credit by the Federal Reserve. Obviously, commitments made of that magnitude raise very large questions. They are not only questions about avoiding waste of the tax payer’s money, important as that is. There are also risks of undermining confidence in the dollar and raising fears of future inflation, they need to be recognized.”

That was Volcker; let me tell you what I believe. I believe gold is going to discount (look into) future inflation, in other words the markets always look ahead, this is the big money and it always moves first. When it does, gold will be off to the races, BIG TIME! I also believe that the speculators will begin to turn to gold as they turned to the NASDAQ and internet stocks during the Dot.com bubble and as they did with housing and oil. In essence, what Volcker is saying and you have heard it for months now, is that the Fed and the Treasury are responding in unprecedented ways to stave off another Great Depression. Trillions are beginning injected into the financial system and the economy. Banks are being nationalized, our major car makers are being bailed out and the Banks appear to be in more trouble than they were a few months ago at the height of the crisis. This means banks are going to need even greater injections of money. There are also currency concerns all over the globe. This I believe will be good for gold!

In a global recession, oil is not going to be the place that speculators turn. Oil is very vulnerable during recession or the beginning of an expansion. Housing is in this same boat. It will be gold that everyone is going to turn to and just as this economic crisis came faster and harder than even I thought it would, the next boom and I mean the boom for gold, could as well! You know that old saying, “there is no fever, like gold fever! That doesn’t mean I think anyone should buy gold for the short term, anything can happen short term and often does. Gold rose today in the face of a slightly higher dollar. The dollar has been in an up trend since hitting a historic low of 71.79, on July 15, 2008. Gold has been holding its own during this period. This has happened before. Gold rose off its intermediate bottom of $412.10 on February 8, 2005. From there gold and the dollar rose together until the dollar gave up the ghost on November 16, 2005. (See the attached chart below). But don’t think that the dollar is going to be strong long term, its not! It can’t and that is what Volcker is saying here, “There are also risks of undermining confidence in the dollar and raising fears of future inflation, they need to be recognized.”

Last week I wrote that, “The divergence between the Dow and the Transportation Average is not necessarily a bad thing here. In fact a divergence between the Dow and the Transports can be a positive at times.” Well that theory is going to be tested because the Transports broke below its November 20, low of 2988.99, on Monday, January 19, 2008, closing at 2959.40, down 188.20. The Dow also closed down big, losing 332.13 points to close at 7949.09. But the November 20, 2008, low for the Dow is 7522.59, so the Dow failed to confirm Transports on the down side, by 426 points. Why is that important? Because according to Dow Theory, if one of these two averages breaks it previous low (which both hit on November 20), and the other one does not confirm and both averages move up and break their most recent high, a new bull market is confirmed. So if the Dow and the Transports break those highs, 9015.10 for the Dow and 3717.26 for the Transports a new bull market will be in force. But if the Dow now breaks below 7522.09, it is a very bad omen and the stock market will probably go much lower. How low? I believe the Dow will break down to around 5000 points. Bob Prechter, Elliott Wave Theory, wrote recently that he believes the Dow will drop below 400 (four hundred) points.

As I suspected, Economic Cycle Research Institute’s (ECRI), Weekly Leading Index (WLI), sank for the second week in a row. This not a good sign and if I had to guess at this time, I would guess that that Dow will violate 7522.09. But two weeks is not a major reversal, so let’s wait and see what happens.

And remember, “It would be foolish to acquire gold for the short term but it would also be unwise not to own some gold for the long term!”

Craig P. Griffin
President
ITM Trading, Inc.