ArabianMoney.Net

This article is taken from Jim Sinclair’s website today and explains exactly where gold stands as an investment class, and why the pull-back in prices is no reason to panic…

The point of destination is the Gold Certificate Ratio, GCR, as a transparent balancing support mechanism for the US dollar and thereby other world currencies as it pertains to new M3 and how the country manages its economy and budgets. Gold will be at a higher price, $1650, and will trade in a band at this elevated level since it will be the fulcrum for the mechanism of stability, a ratio of gold held in reserve against outstanding dollars/debt (new M3). The market will move the trading bands. Gold will be “the” desired currency. Many countries, China for example, will openly demand more gold to boost their reserves. The past many years of “gold sale” rumors by central banks that helped keep gold down and gold owners frightful will be over. This negative gold sales sentiment (which practically doesn’t even make the rounds anymore today), will flip over to a positive psychology as in which country is going to be doing the next “Gold Buy.”

The US Fed is lending via the (begging bowl) to the most damaged US bank entities, possibly insurance companies, etc. Now you have pointed out another group of lending addicts -foreign banks – most assuredly British and Europeans entities. This enables the Fed to be more powerful down the road when European weakness blossoms into recession. The Fed who is doing this great lending favor will be owed – even though the Fed to a degree let the derivatives loose and enabled the bubble in the first place. When it all comes apart then it will be an economic world emergency in need of a new Bretton Woods, the birth of the GCR. It all comes back to the real money and real trust, only gold is good.

I have read at least 3 articles, you have probably read more, where plugged in CFR members and associates have been writing and speaking about gold in terms of future financial stability and currency management. These are the wisps of think-tank smoke that indicate the fire of rebirth of a new gold related component to the global monetary system. Jim, you are not alone in this thinking. If our monetary problems are as severe as we believe them to be and that this will be a western economic recession/depression then it will take a solution that is as great as the problem or greater to fix it.

The Formula shows how the USA is in a reinforced downtrend economically leading to severe recession. The self feeding formula has been true all along as different facets of the formula have become more real every day. Since the housing collapse and energy spike, the man on the street is becoming more aware of the economic problems and he is starting to worry. Joblessness is rising, home prices keep falling, foreclosures unprecedented in number, inflation in food and energy very high and persistent. The weak economy is not a secret any longer since it is now on TV, (Indy Mac bank failure comes to mind). The availability of credit for consumers has done a swan dive. Bigger formula inputs are getting worse: budget, current-account and trade deficits are still going the wrong way, military spending is high, auto makers are about to go out of business. The list of feeds into the formula are all on max power. As in a max power dive of a certain red bi-plane piloted by Paulson and Bernanke. That plane is aptly named the US Cinderella Economy.

Drilling down to where we are now – a correction in many related trends. The blip up in TIC due to suspected foreign beggars lapping up from the Fed’s loan bowl aside, the foreign countries are buying less treasuries. Dollar diversification is the open rule now and this leads to further dollar weakness over time. A bear market dollar rally is happening too with a cement lid at .80, the lid of a sewage waste tank – a fitting cap to this summer of gold seasonal weakness. The oil ramp worked as a nice commodity power lever to pry gold and every other commodity away from weak hands and momentum players, hedge funds. Gasoline now $3.69 a gallon down from $4.19 a gallon is a correction and the man on the street will take it, but cost push inflation keeps filtering in to finished goods from the oil price shock. Everything is going up and not coming down much at all. So we have endured a bull market correction in gold, in oil, in most all commodities, the euro, the Chinese market, you name it. Likewise it has been a bear market correction in the US dollar, US stock market, US bank stocks, US builders, etc. However, for the US economy and the man on the street it has been a sideways correction at best in this down-trending economy. The government rebate relief checks have been spent and gas is still high, and winter is coming with higher heating bills expected.

Going forward towards our destination from where we are today, the Formula shows that we are still in a severe economic downtrend. Big banks and brokers including many other companies have more and more write-downs coming due to derivative losses marked to market. In reality it is marked to model and the model is kept as balance sheet friendly as possible. Holding off on FASB rule implementation, giving bad assets more time to whither in secret before opening them up to quarterly light exposure, and other off balance sheet tricks and level 3 chicaneries is the managed process of a slow death. Buying time – delaying action is done to help hold off a superior force until the last possible moment, allowing an escape of key people (Paulson and the current administration) and key assets, (insider stock and bond sales). We are simply in a delaying process. If there was no FNM/FRE mini rescue, no begging bowl, no enforcement of strict accounting rules then it would be over right now – a crash of markets, models, currencies and companies. It would be ground zero of a financial nuclear explosion. The dollar would violently implode and Gold would lurch towards the sun.

But the path is a slower one, not a crash. And this slow nature makes people question their investment decisions. Gold is the centerpiece of our destination. That gold will be priced appropriately to reflect value against paper losses, debt destruction, and worthless money. As the path continues towards our goal, expect more losses and bankruptcies, bailouts, and giveaways from politicians to hungry voters. Between these events will be times of fresh sunshine and clean air. Use these times to prepare for the endgame by distancing your assets away from infected financial institutions. At some point the path is going to get dangerous and we may get a storm or two. Outside thunder cells include Russia, Iran, Pakistan, Venezuela, and China looking West after the Olympics are over.

Bad things tend to happen to weak markets. The US economy is weak. After the reality of what derivatives have done to our companies and the reality of what utter rot our Federal, State and Local economies are in then it is going to happen. The bloated dollar system simply will not work anymore: a freeze-up of liquidity, bank runs, a panic, market/bank holidays, a busted internet broker and a broke and needy FDIC will equal months of market declines. This will feed out over weeks and months and then after our current administration leaves office the lights will still be burning all night at the White House, only our new president and his team of advisors will be working the all-nighters. “Mr. President, it’s called the Gold Certificate Ratio, we would like your authority to have the Secretary of the Treasury present this new policy model to our G-8 counterparts. It surely will strengthen our dollar and we are sure our allies will support this new mechanism. The American people need this too, and will need to understand the new policy model. We have come up with a phrase, The World Dollar Gold Accord.”