Volatility in the gold market is greater than anything we’ve seen since the 1970s bull run. There is so much analysis out there as to why this is happening that it becomes difficult to pin down the two or three primary drivers to this market. My hope with this post is to pull together some seemingly disparate parts into a functioning whole for the benefit of our readers trying to make some sense out of this.
Overall, despite the volatility, the trend in gold is solidly to the upside. The most important feature of the trend from both a fundamental and technical standpoint is that there are some deep pockets on the bull side of the equation with last night’s overseas run-up in the price the latest manifestation of this “presence.”
But what is the nature of this presence?
In my view, that “presence” is not so much an individual or group, like the hedge funds, but an idea which has reached full maturity in the collective-global financial consciousness and working across the spectrum of financial interest from the hedge funds, to the big banks and trading houses, to large capital investors, and smaller investors alike. That consciousness has to do with the U.S. government/Federal Reserve‘s move to devalue the dollar.
The fact that the dollar is falling in value means that investors consider the United States economy to be in disarray and out of control.
This is not something that has occurred in the last year or even in the last decade. This is an event that has been in the making for much longer than that.
I don’t have to tell anyone this. The U.S. economy is mired in a huge amount of debt.
In fact, the U.S. government is sitting on up to $125 trillion of debt which must be paid at some time in the future.
This debt includes:
$11.5 trillion National debt – this debt has exploded in the last 12 months. It includes cumulative debt plus all the bailouts, stimulus plans, and the 2009 deficit.
$104 trillion Unfunded obligations – this includes obligations for social security and medicare. There are 80 million baby boomers scheduled to retire over the next decade. We do not have the money to make these payments.
$9 trillion Projected deficits over the next 10 years
$1 trillion Health care reform – When the final health care reform package is passed, this number will probably be much higher.
Investors have major concerns about the U.S. government’s ability to pay what it owes.
Therefore, we are seeing the dollar on very shaky ground.
In order to pay its bills, the U.S. government must borrow a significant amount of money from investors (lenders). A large percentage of these lenders are foreign countries such as China, India, Brazil, and European countries.
Gold silver terms:
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