-- Posted Monday, 3 November 2008 | Digg This Article | Source: GoldSeek.com

In the past few weeks, the U.S. Federal Reserve has joined with the U.S. Treasury in an attempt to remedy the financial fiasco. In that effort, the Federal Reserve's balance sheet has ballooned by more than 50%. Never in peace time history has the central bank for the world's reserve currency so intentionally implemented policies that will destroy the value of that reserve currency. As a consequence of that massive monetary ease, the U.S. money supply, M-2, is now growing at a double digit rate. That monetary growth is readily evident in the first graph. The deflationists can now quite worrying, the quantity of U.S. dollars is rising and the value of those dollars will therefore fall.

As the second chart below shows, that renewed monetary growth is likely to benefit Gold investors. The green line is the six month rate of change of the value of $Gold. It uses the left axis. The red line is the six month rate of change for the inflationary component of U.S. money supply growth, using the right axis. Calculation for that measure is the annualized six month rate of change minus 3%, a long term estimate of productivity growth.

Buy signals on Gold have been created with that monetary inflation measure. When that measure is negative and then turns up into a positive reading, a buy signal is given. Those signals are marked with black triangles. As is apparent, those signals are associated with rising returns on Gold. This most recent explosion of U.S. monetary growth is signaling that the return on Gold should begin rising dramatically. That would be as expected as the Federal Reserve is doing all possible to inflate, and reduce the value of the dollar. At the same time a massive short, real and psychological, position has been built such that a classic short squeeze in $Gold is extremely likely. Investors not mired in the thoughts of 1930 should be buying Gold at these prices, while they exist.

GOLD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly.

For a subscription go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html

-- Posted Monday, 3 November 2008 | Digg This Article | Source: GoldSeek.com

Ned W. Schmidt, CFA CEBS is publisher of THE VALUE VIEW GOLD REPORT - Coverage of the emerging GOLD SUPER CYCLE. Explores the situation in Gold that may carry it to $1,225. To subscribe Click Here. A trial period is available by Clicking Here

Ned W. Schmidt, CFA CEBS is a nationally recognized authority and speaker on a variety of investment topics, including value investing and global capital flows. Currently, Ned is Resident of Schmidt Management Company in DeLand, Florida, specializing in financial engineering. The firm’s proprietary research influences about $15 billion in assets, and is investment advisor to the Argyle Global Equity Appreciation Fund.

Most recently Ned served as the Visiting George Professor of Applied at Stetson University where he taught institutional money management. Preciously he had been a Senior Vice president with a trust company where he had the responsibility for discretionary investments of $3.5 billion.

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