US Treasury Secretary Tim Geithner Tuesday announced his plans to help banks rid themselves of their toxic assets and restore stability to the banking system. He was “rewarded” with a stock market sell off as investors decided their money was better off invested in Treasury bonds and precious metals.

Gold Rally On Bailout News

Investors are smarter than politicians and central banker stooges and we see this demonstrated again today with the rally in the price of gold.

As stock prices fell almost 5% percent yesterday (and the sell-off continued today until the announcement of the House and Senate reconciliation of the Stimulus Bill…DJIA closed up only .38%), gold ran up and is doing so today as well…up over $15 an ounce.

Investors know Geithner, Paulson, Summers, and the lot have no idea how to cure the weakening US economy or “fix” the credit markets. With this idea firmly implanted, smart investors know the worst is yet to come. The worst for the US dollar, the stock markets, and the bubbling over bond markets are still out there waiting to clobber the unprotected or overly optimistic.

Gold Is Safe

Safety is the main concern for smart investors now. Sure, go ahead and chase news stories or be “contrarian” if you want, but don’t come crying to me when gold hits $3000 an ounce once the bond and MBS markets crash.

Get in now while you still can…once the central bankers figure out even they don’t have enough cash to support the mortgage backed securities (MBS) market (which is BIGGER than the Treasuries market…did you know that?) and Treasuries market, gold will soar.

Happy Investing!

UPDATE: Found a Bloomberg video today discussing the gold rally…Enjoy!

The speaker discusses the price move in gold is still undervalued and the current price is supported NOT by speculators but by sober investor seeking safe haven. He also suggests holding a combination of gold stocks and physical gold as part of a long term investment strategy.

Don’t get me wrong, I hate Obama’s choice for Treasury Secretary in Tim Geithner, but it really helps gold prices. Geithner as Treasury Chief has had a boosting affect back when his name was first floated and again this week as his confirmation was pretty clear.

Gold Price Milestones and Tim Geithner

Back on November 21, 2008 when Obama announced his choice, Bob Pisani made note of the Geithner effect saying,

“Particularly strong throughout the day were gold stocks, including AngloGold Ashanti, Gold Fields, and Barrick Gold, each of which closed up 30% on the day. Gold stocks strengthened earlier on the heels of gold prices crossing $800 for the first time in a month.”

And here we are again…during the Senate confirmation hearings where it becomes clear Geithner will get confirmned…even with a strong dollar, gold prices hit $900 an ounce.

So it could be coincidence…or it could be that everyone knows a Geithner Treasury is going to be bailout happy. Since Obama will get all the funding bills he asks for through Congress, Mr. Geithner will have a lot of money to print so he can give it away.

And therein lies the cause of the gold price spikes…fear of inflation.

Geithner = Bailouts, Bailouts = Inflation, Inflation = Higher Gold Prices

Don’t miss out…buy physical gold while it’s still cheap.

Happy Investing!

I have always believed the Federal Reserve and it’s Chairman had other objectives when taking office than simply “stabilizing the business cycle” or “fighting inflation”. As in all Orwellian dramas, the stated objective is usually the polar opposite of it’s nomenclature. This Federal Reserve with it’s current Chairman, Ben Bernanke, is no exception.

Currency manipulation and by proxy then, gold price manipulation are right up Bernanke’s alley. As we all know the price of gold and the strength of the dollar go hand-in-hand…inversely, of course. We all also know the way Bernanke and company print so many US dollars to pay for wars and bailouts…it’s call the US Treasury market.

A quick overview how money is created out of debt in our system…

1. The Treasury needs money so it issues Treasury bonds…or debt which requires a repayment with interest.
2. The buyers of the Treasury bonds, both foreign and domestic, transfer US dollars to the Treasury which deposits these payments.
3. The Treasury is now responsible for repayment of both principal and interest on the bonds issued. It is said this system is the “back-door” to pay the “cost of government” politicians are unwilling to ask the taxpayers for in the form of more taxes. It is the “line of credit” for Congress and a direct addition to the National Debt which now stands at over $10,000,0000,000,000.
4. We will pay back that debt with interest and maintain our standing in the world, but it is becoming increasingly worrisome. The only real solution is to payback all of the interest and principal payments with “devalued” dollars. So, sooner or later we will have to “inflate” the US dollar and some say keep inflating it so our creditors get less and less for buying our Treasuries.
5. This is where Ben Bernanke steps in since the Federal Reserve prints the US dollars, controls the money supply, and by proxy, it’s value. Increase the money supply decrease the value, decrease the money supply, increase the value.

Ben will inflate the currency when necessary and my guess it will be an on-gong endeavor for years to come. Federal Reserve Chairman in the past have at least given lip service to a “strong dollar” policy, but not Mr. Bernanke. He stated in his famous 2002 speech on deflation, a “helicopter drop” of more money could be used if necessary. He became know by detractors as “Helicopter Ben” after that speech.

Are we not in a “deflationary period” right now?

Won’t Ben need to fire up his helicopters soon?

Hasn’t he already “dropped” $700 Billion with the lastest financial bailouts?

This is where the price of gold gets a kick. If Ben does what he thinks “needs to be done” a weaker dollar is the result. A weaker US dollar means the price of gold goes through the roof.

James Conrad on SeekingAlpha writes,

“Anyone who reads the written works of our Fed Chairman knows that Bernanke’s long term plan involves devaluing the dollar against gold. This is the exact opposite of most prior Fed Chairmen. He has overtly stated his intentions toward gold, many times, in various articles, speeches and treatises written before he became Fed Chairman. He often extols the virtues of former President Franklin Roosevelt’s gold revaluation/dollar devaluation, back in 1934, and credits it with saving the nation from the Great Depression. According to Bernanke, devaluation of the dollar against gold was so effective in stimulating economic activity that the stock market rose sharply in 1934, immediately thereafter. That is something that the Fed wants to see happen again.”

Since Congress can’t seem to steer clear of war expenditures, cease funding every private sector bailout, and eliminate the mentality we can “borrow and spend our way” out of every mess we create…the price increases of gold are baked into the cake.

As James Conrad said in the same December 4, 2008 SeekingAlpha story,

“It won’t matter much if you purchase gold at $750, $800, $850, $900 per ounce, or even much higher. All of these prices will be looking extraordinarily cheap in a few months. The price of our pretty yellow metal is about to explode, and it is probably going to soar, eventually, to levels that not even most gold bugs imagine.”

I think he’s right…so get started today…I’ll help…click the link.

Happy Investing!

I don’t put much sway in what “pundits” say because I know they have an agenda…Jim Cramer taught me that much. However a report out today by Citigroup analysts says gold prices will hit $2,000 an ounce due to the global financial crisis. I find this significant because they see this happening in 2009 and this supports Jim Rogers expectation for gold next year as well.

Unlike Rogers, these analysts credit the rise of the price of gold to the political reaction to the financial crisis which is likely to cause more problems than they solve. The basic assumption is the over-reaction to banking and financial meltdowns is either a hyper-inflation creating “bailout reaction” or a full blown depression should those measures not work as expected…either option improves the price of gold.

The Telegraph reports,

“They are throwing the kitchen sink at this,” said Tom Fitzpatrick, the bank’s chief technical strategist.

“The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

“Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don’t think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes,” he said.

“This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised.”

I am bullish on gold prices for the next year and I’m not leaning on analysts but my own eyes. You should do the same before you invest. However, we all need a dispassionate facilitator to keep our investment goals clear in face of troubled times.

We can help…click on the “Get Started” link to learn more…

Good Luck and Happy Investing!

This page will hold a ticker on the current gold price updated live. This is for you to check in occasionally on the movements in the current price of gold, but not to make trading decisions with.

Just like in the stock market, there is a “bid-ask” spread when it comes to buying and selling gold bullion or gold coins. If you follow my methods for owning gold, you’ll stay away from the coins since the coins have a premium built into the bid-ask spread…and lately that spread is too great over the bullion. So until that corrects…bullion is a better buy.

Of course, there are those who buy gold in coin form so they can take possession of it…and hide it in their back yard or under their bed…and my guess is those camps are growing…not dwindling. I don’t hold the opinion financial Armageddon is at hand (nor do I want to worry about safe storage of my gold), but I do hold that the recession, the housing bust, and the financial crisis will be a lot worse than expected.

When everyone figures that out…the price of gold will skyrocket. Of course, you need to take a position before it becomes obvious to the world. I can help…click the link, Get Started! today!

Good Luck!
Rob K. Blake
The Gold Insider