Now here's an irony. Americans have grown up thinking in terms of dollars. They express their wealth in dollars. Everything we buy today is denominated in dollars. We're a "dollar nation," and even when the dollar loses 40 percent of its value against the peak euro price, we hardly notice it.
But this is the new global world, and there's only one global currency. That currency is gold. Gold is the "center" around which all paper currencies (admittedly or not) revolve.
But here's the irony. Americans feel confident in holding dollars, but they view gold as a speculative and highly volatile commodity. In other words, they trust paper dollars -- but they distrust gold. That's tantamount to saying, "I feel safe when I'm swimming far out in the ocean, but I always feel shaky when I'm standing on dry land."
In other words, after twenty years of a gold bear market and after 20 years of government anti-gold propaganda, Americans trust irredeemable printed paper, while the distrust real money. Incredible but true. As Hitler's Minister of Propaganda, Joseph Goebels, put it -- make the lie big enough, and tell it often enough, and people will believe it.
Every once in a while, people seems to stop thinking. This is one of those times.
The following is from John Hathaway's "Year End Gold Review (he's the head of the Tocqueville Gold Fund) ." "Since the gold bull market commenced in August, 1999, gold has increased 66% while the euro has increased 19% against the US dollar. However, over the past years they have increased by roughly the same amount, leading many to think that gold is just another play on the weak dollar,
"Once the weak dollar creates sufficient stress among our trading partners in Europe and Asia, central bankers will figure out ways to reverse the trend, at least temporarily. Investors will then begin to realize that there is little to differentiate among paper currencies, and that gold represents the only real alternative to the dollar-based system of international credit. At this stage, we expect gold's rate of appreciation against all paper currencies to accelerate."
As I write this morning, March silver is up 12.3 to a new high of 6.62. I'm not going to go into all the arguments in favor of silver, let's just say that silver has been chronically underprices, the US government is now out of its silver inventory, and there's a giant short position in silver.
I've been recommending silver stocks for many months. And almost all of them have done well. One of the best is Pan America Silver (PAAS), and I show the chart below. PAAS broke out of its base, when it rose above the 9.5 box, and it has been consolidating and breaking higher ever since.
I bought the stock earlier and added more today. I like PAAS along with SIL, SSRI, CDE and HL. PAAS, however, may be the class of the lot. At any rate, the chart is flawless.
I want to say a few words about bonds. Today, the March 30 year T-bond broke out above three preceding tops to its highest level since last July. Doesn't that seem counter-intuitive? Commodities going up, precious metals going up, copper going up, oil going up, stock market going up -- and bonds also going up?
What gives? It's a real mystery. The only thing I can think of is that a certain group of investors believe that either inflation will simmer down or that there'll be some actual deflation. At any rate, the yield on the long bond has broken below 5%, a very unexpected development.
Remember, there are powerful deflationary forces operating in the world today -- and they are world over-production and the almost unsustainable levels of US debt. Against these forces, the Fed is inflating, inflating. But is the Fed inflating fast enough to counter the forces of deflation? And what does the massive decline in the M-3 money supply mean? Is the decline in M-3 a force for deflation? The fundamentals of the bonds' strength is a mystery, but the bond action isn't a mystery -- it's happening. And today the bonds broke out to new highs.
