I Have Not Sold One Ounce of Gold or Silver This Week and Will Not. – Walk Away from the Trading Screen

Today is the liquidation of the weak longs and large scale bullion banks taking advantage of the market tantrum that Wall Street is having for not receiving actual QE 3. QE 3 is coming (despite the fact it is the result of 40 years of debt based currency) and the Fed is the only entity that can stop a full on cascading melt down in the US, EU and UK banks.

The leveraged funds are getting knocked out and with the Asian Pacific Gold Exchange ready to open, this is the last shot the highly leveraged paper shorts in silver and gold have to try to get out of their massive and deeply in the red short positions before the physical market throws them off.

The dollar a safe haven? Please, don't insult my intelligence. The one thing I know with certainty is that the dollar in absolute terms is valued inversely proportionally to the amount of net sovereign and private debt in the United States. Gold is valued proportionally to the global net of sovereign debt. Yes, the Fed and other central banks can manipulate the dollar up relative to other currencies and can for a short period (for the time being) also work on making gold look like it weakening relative to the dollar on a very short time scale. On a longer term scale (step away from your trading screen), the dollar is buried under unrepayable debt, which explode if the economy takes a nose dive even steeper than the one its in.

Increasing Debt = Dollar Devaluation and Gold Appreciation. Given that that even the Fed acknowledges significant downside risk (which is deep understatement), they have done so to prime the pump for the next round of QE 3, which I expect will be announced within 30 to 60 days or sooner if the markets don't level out pretty soon. The one thing I am certain of is that the dollar and the debt will be moving in inverse relation over the long run and that debt will increase if the economy doesn't pick up, making the risk to the US sovereign debt increase. Here is a recap of Jim Sinclair's formula that describes the completely untenable situation that the US and EU financial systems now find themselves in. Keep in mind that only because of QE has item 1 not been seen yet. QE devalues the dollar as well as a crashing economy because QE simply prolongs the increasing debt cycle:

Jim’s Formula:
September 1, 2006

1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.

2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella – Goldilocks situations.

3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.

4. The formula economically is inherent in #2 which is lower economic activity equals lower profits.

5. Lower profits leads to lower Federal Tax revenues.

6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.

7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.

8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).

9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.

10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.

11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.

12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.

Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.

I heard all this “slow business” as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.

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