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A Bit of a Correction: Gold

We had a pullback today in Gold, but as you can see from the chart it is still above the 13-day moving average. Our key to holding the commodities and the commodity stocks is the 13-day moving average. If we break it, we’ll take profits on the major move we’ve made and then buy back in when we move back above the 13-day moving average.

So what happened to trash the commodities today (and the rest of the market)? We had Bernanke testifying before Congress. We have developed a pattern of the dollar rallying (through intervention none of us are supposed to recognize) when any of the economic team is before Congress. Today, the dollar was up and that sent gold, oil, silver, and other metals down.

This is just a temporary issue and we will hold current positions as long as we remain above the 13-day moving average. It is pretty easy to see that when gold moves above the 13-day we have a nice rally and when we move below we have a correction.

This is just a tactical move as we believe that in the intermediate term, all of the commodities are set to move substantially higher based upon the monetary policy we have adopted as a country (please do not email and complain that this is an attack on the current President – its not, it was a policy started before he came into power and he simply believes, like his predecessor, that it is the only way out of the current economic situation).

We are monetizing our debt (printing money) which will ultimately lead to inflation – not tomorrow, but somewhere down the road. We can’t have $13 trillion in debt outstanding for our country with no visible way to pay it off other than: (1) inflating the economy and making the debt a smaller percentage of GDP; and/or (2) raising taxes.

There is a lot of talk about raising taxes on the rich to pay for this. Here is hint, the rich don’t have that much money. Everyone knows this – with less than 50% of the people in this country paying taxes, we can’t raise taxes high enough to fix this problem. Everyone in power knows this – they can incrementally increase taxes without completely killing the growth in the economy – but they cannot go back to the 92% marginal tax rate that came about from the Great Society.

Everyone in power knows that cutting taxes to a point is a good idea to increase growth and that raising taxes to a point won’t harm growth. The only way to pay for all of the initiatives the current administration wants to implement to correct our social ills is to inflate the economy so that the debt we are assuming is a smaller percentage of the economy while having tax revenues increase with a growing economy. We need both economic growth and inflation, and the only way to accomplish that is to keep tax rates in the Clinton/Gingrich range, and let inflation do the rest.

As an aside, I was just watching Robert Reich and Dick Armey debate the current economic situation. These two are veterans of the Clinton/Gingrich economy and they both get it. One is from the left and one is from the right, but in the debate you could tell that they understand and believe the above paragraph in spite of towing the party line.

Gold, oil, silver, and other commodities are going up – not in a straight line, but they are going up. We are using the 13-day moving average as our tool to protect gains and reinvest at lower entry points as we work our way through this macro-economic situation.

Check out the graphs of the dollar and oil for further insight in the next posts.