-- Posted Friday, 12 October 2007 | Digg This Article
| Source: GoldSeek.com
DEEPCASTER LLC
www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
Wealth Preservation Wealth Enhancement
Financial and Geopolitical Intelligence
That Gold generally moves inversely to the U.S. Dollar, ceteris paribus, is almost axiomatic. When the U.S. Dollar is weak rational investors turn to traditional stores and measures of value of which the primary one is Gold-as-money.
But the Gold-Dollar relationship historically does not have a one-to-one correlation, probably because there are more factors which influence the fiat currency price of Gold than merely the value of the U.S. Dollar as measured by a market basket of other currencies. Fox example, since August, 2001 Gold’s gains (of about 190%) have outpaced the U.S. Dollar’s erosion (36%) by a factor of about five to one.
The key question is how to profit from this relationship.
When considering investment in gold bullion, gold coins or gold shares, it is essential to consider the $463 billion plus (Dec. 2006) in OTC (Over-the-Counter, i.e. NOT exchange traded) derivatives reported by the BIS (Bank for International Settlements - - the Central Bankers Bank) which can be used any day to take down the price of Gold (see www.bis.org >statistics >derivatives >Table19).
A recent example of such a Fed-led Central Bankers Cartel* takedown was the stunning October 2, 2007 $18-in-one-day takedown. Consider seriously the fact that this Takedown was accomplished in the face of extremely bullish Fundamentals and Technicals** for Gold.
Moreover, as Deepcaster has repeatedly pointed out, Gold & Silver, the monetary metals (as well as the Strategic Tangible Assets such as Crude Oil) are the “Mortal Enemies” of the Central Bankers’ Fiat Currencies and Treasury Securities. The Cartel simply cannot afford for investors to long regard Gold & Silver as the ultimate, (or even alternate) stores and measures of value as that would decrease the legitimacy of their Treasury Securities and Fiat Currencies.
Indeed, a measure of the historical effectiveness of the Central Banker Cartel* in suppressing Gold prices is that, in inflation-adjusted terms, Gold would have to exceed U.S. $2200 an ounce this year to top its all-time high of $850 in 1980.
Yet in spite of the seemingly omnipresent takedown threat, there are subcategories of precious metals and strategic commodities investments which are resistant to takedowns. Deepcaster identifies and makes specific recommendations within these such categories in its April, 2007 Letter.
By all other measures, within that 1980 to 2007 period, we have had massive inflation. The purchasing power of the U.S. Dollar in that period has dramatically declined and the amount of money in circulation (M3) has dramatically increased. That is inflation by any measure.
But Gold, which is historically been regarded as the antidote to inflation, has only sustained about 40% of its 1980 value in inflation-adjusted U.S. Dollar terms.
The foregoing facts are a measure of The Central Bankers Cartel’s power. Thus, when evaluating the relationship between the Gold price and the “price” of the Dollar, vis-ŕ-vis a market basket of other currencies, it is crucial to consider the other factors at play.
Evaluating this relationship today, two important technical factors stand out. The Dollar recently breached its all-time low measured by the USDX. As well, the Dollar has nearly completed a massive long-term bearish Head and Shoulders pattern.
Thus from technical and fundamental perspectives it was utterly irresponsible that The Fed cut the Fed Funds Rate and the Discount Rate on September 17th knowing that it would further weaken the Dollar. In so doing they drove another economic stake into the heart of the middle class who increasingly rely on imports (now more expensive) to provide the necessities of life. And in so doing The Fed impaired middle class consumption potential, the engine of recent economic growth.
Moreover, these irresponsible Fed actions were not only a great help to Wall Street but also was very hurtful to the average subprime ARM mortgage holder facing both upward interest rate resets as well as having to pay much higher prices in weakened U.S. Dollars for imported goods.
In sum, contrary to the “line” presently being pushed by the Big Media, a weak Dollar is very hurtful to middle-class Americans.
But even though it is now obvious that The Fed will inflate by dropping “money out of helicopters” to repeat Bernanke’s metaphor, (and thus causing the U.S. Dollar to degrade over the long run) it is also clear that The Central Bankers have a very substantial interest in not allowing what is still (albeit weakened) the World’s Reserve Currency to precipitously decline. Such a precipitous decline would weaken their credibility, power and influence considerably.
Considering all the foregoing, Deepcaster has recently recommended specific positions in the U.S. Dollar, and options on specific Gold shares and Gold, energy, and the equities markets indexes. Since the recommendations were based on fundamentals, technicals and interventionals, we believe the prospects for profit are quite positive.
In sum, The Fed has likely doomed the United States to a future of hyperinflation, a stagnant economy (or worse), and a dying U.S. Dollar. But with the September 17th rate cuts they assured protection of their biggest Wall Street clients.
The foregoing observations provide little solace to all but the wealthiest investors (as well as those armed with Deepcaster’s Forecasts and Recommendations), but they do provide some knowledge about the future which can be used to protect wealth and enhance profits.
*We encourage those who doubt the existence of Intervention by a Fed-led Cartel of Central Bankers to read Deepcaster’s October, 2006 summary overview of Intervention entitled “Juiced Numbers IV: How the Government Gets the Statistics It ‘Wants,’ Markets Get Manipulated, Citizens Get Deluded, and Worse” at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org for information on precious metals price manipulation. Virtually all of the evidence for intervention has been gleaned from publicly available records.
**Traders Note: The Cartel market manipulators tend to like to overshoot technical targets in “breakouts” (up in the case of Gold, down in the case of the Dollar) to lure hard money investors into “getting offside” as it were. Then the full weight of their aforementioned derivatives position is typically brought into play with unfortunate results for hard money asset investors. Remember, that $460+ billion in OTC derivatives is available to manage the Gold market alone which is a relatively small cap market,
The Cartel is the biggest player in several markets and the biggest player determines the market price at any one time.
Deepcaster
October 12, 2007
DEEPCASTER LLC
www.deepcaster.com
Wealth Preservation Wealth Enhancement
Financial and Geopolitical Intelligence
Gravitas, Pietas, Virtus
-- Posted Friday, 12 October 2007 | Digg This Article | Source: GoldSeek.com
