The first game of the World Series.

This is an unusual year. So, it should not surprise us that we are having an unusual World Series. The ascendency of San Francisco and the Texas Rangers into the series stunned the East Coast crowd that expected (and wanted) the Yankees and the Phillies. But it was not to happen.

The first game was viewed by the East Coast pundits as a pitchers' duel. Low scores were expected. And it began as if the pundits were right for a change as Texas went ahead two to nothing. Then in the span of a few minutes SF scored six runs and the Texas pitcher (unbeaten untill then) was not only beaten but out of the game. That was not the end of the story. By the time of the final out, the score was eleven to seven.

On to tonight's game.

Volatility.

Since, I have posted about a small correction, the end of it, then an even bigger correction, what gives?

The gold price and the gold market has entered a time of volatility. That is self-evident. But why?

It is not hard to point at possible culprits, but we won't know until someone blows the whistle and publishes the data. Is the FED trying to reduce gold prices (and up the Dollar) to convince the electorate that everything is all right? Or, are the Chinese selling gold to thwart the FED in lowering the value of the Dollar and for an upward revaluation of the Yuan? Or, are gold traders taking a profit and pushing down the value of gold so they can buy more at cheaper prices? Hard to know at this point.

Nov 3 will be an important day. We might know the election results and will begin to see the Market's reaction to it. And we will know (maybe) the outcome of the FED's meeting on Nov 2. Will we get some idea on QEII and its size? Will the FED buy up the 13% of houses in foreclosure or waiting for foreclosure?

Investors know the score, they just don't want to believe it. The FED made it clear that they want more inflation, more money printing. Deficit spending continues. Money printing continues. Gold prices will rise to yet new records.

Gold: correction under way.

My favorite analyst has warned about a coming $100 dollar correction in gold prices and the correction arrived like a thief in the night. Simultaneously with the drop in gold, the Dollar went up and oil dropped a couple of dollars.

HOWEVER! Gold miners are dropping slower and silver miners are resiting downward pressure. Oil prices recovered some and the Dollar is howering a little over 77. The correction might be of uncertain size at present.

Why is gold dropping? The culprit is probably the FED, trying to fool the voters that things are all right. Big decisions are coming Nov 2. The FED will meet that day and of course we have the election. Do people believe that a Republican victory will moderate the Obama regime? If they do, they are mistaken. And the FED will do whatever it wants to do. QEII is coming soon.

US Dollar at precipice.

Paper currencies, especially of the West, have been in a race to the bottom. With the ascencion of the Obama regime, the stage is set for the destruction of America's economy and the demise of the US Dollar.

The top graph shows the loss of value of selected paper currencies against gold. The loss has been steady for ten years. The currencies have lost a very substantial amoung of their value.

The second graph shows the the loss of value of the US Dollar against other currencies. The value of the dollar is plotted against an index, derived from comparison to other currencies. The general rule is that if a financial instrument buts up or down against a line ( be it either resistance on the way up, or support on the way down), it will go through that line on the third try. For the US Dollar, the magic number is 77.

The fall in the US Dollar is not accidental and not even due to economics. It is the deliberate policy of the Federal Reserve and the Obama regime. The use of the 'mark to market' accounting is aimed at bankrupting our financial institution. This reduces the value of America. A second way of doing this is to reduce the value of the US Dollar through inflation.

Beginning this week, BS Bernanke of the FED declared that the FED wants more inflation and will add to the outstanding currency. This has dropped the value of the dollar and increased the value of gold almost immediately (see next two graphs).

The last graph shows the technical expectation re the US Dollar. The head and shoulder pattern predicts the US Dollar to fall to 72 (in other words break through the 77 level) shortly. Indeed, the current value is at 76.5.

Analysts now predict the value of gold to rise now to 1,500/oz and both that and the value of the dollar are temporary figures. As nation after nation dumps their dollar reserves, the US Dollar will fall and there is no support in sight. Gold prices, on the other hand, are forecast to rise. Today, gold has reached $1,382/oz gold, but gold and silver mining stocks have not confirmed this rise.

The markets are waiting for yet another speech from Helicopter Ben.

Gold correction accomplished.

Gold prices had been showing reduced volatility. Most of the time, gold prices have been increasing. However, gold had become overbought, which was shown by the gold price having been above the upper boundary in the graph for several days. I thought that a correction was coming (see last post). That correction occured as gold price fell today from 1,363 to 1,333. That was enough to bring the gold price back within the upper boundary of the expected range.

What happens now? Under normal circumstances, we would expect gold to come back to the 50 mark on the graph or even below. These downward jags represent the hesitation by buyers to re-enter the market as they wait for prices to come down some. Hower, the report from the gold market is that traders wait less and less, so gold prices might resume their upward march tomorrow. Regardless, whether gold starts its move tomorrow or Monday or Tuesday, the next high plateau is calculated to occur between 1,395 and 1,405.

Technically, there is no resistance to gold prices moving higher. A lot will depend on what the FED announces. The FED promised more QE if the economy softened. Well, it did, but the figures on unemployment are being fudged, so the FED may wait till after the election. Chances are though that the FED will print and gold keep rising.

Slight corrections under way.

We can see in the previous post that gold prices became overbought while the dollar became oversold. These conditions are shown by shaded areas. This will become corrected and price movements resume.

While, I believe that the FED is already doing quantitative easing, it is not doing so officially. The story making the news circuit that if employment and manufacturing numbers will be worse than expected, QE2 will be officially implemented at the November meeting of the FED.

What does this talk mean? Inasmuch as these numbers can be adjusted up or down, the FED has already decided on QE2 and its implementation is just a matter of timing and trotting out the proper excuses.

Another story floating around is that other countries (Japan for example) are already adjusting the value of their currency to blunt the drop in their exports by the drop in the dollar. Another story is that emerging economies (Brazil, India and China) are not that confident of their economic growth, so they are watching their currencies that these do not appreciate. This is a phony story though. China, India and Brazil are experiencing strong growth and do not need to debase their currencies to maintain their export advantage. All these stories are floated by the friends of the Obama regime to make QE2 palatable to the tune of a Trillion dollars.

And now IT begins.

What exactly is "IT?" It is STAGFLATION, first experienced during Jimmy Carter's Presidency. I have already posted on the Raging Bull, how these concepts relate: first comes DEFLATION as shadowy regulators changed the accounting system to 'mark to market,' declaring many financial instruments worth zero and thus bankrupting banks and financial institutions. That was done to stop money circulation (Sept 15, 2008) and elect Barak Hussein Obama as President. The deflationary phase was continued to nationalize GM and Chrysler, the mortgage industry, student loans, and a good chunk of the banks. The nationalization of medical care was done via legislation. Bankrupting of insurance companies is in the works, forcing everyone into government-run medical care. The bankrupting of the power companies and a lot of industry awaits the passage of "Cap and Trade," which will put a large tax on using carbon-based fuels and transfer the capital to third world nations. The Obama regime and its Democrat base intends to put people on unemployment, our current version of the CCC camps of the 1930s.

To accomplish this, the regime had to "print" money which caused monetary inflation. I have described how this printing works - it is called "quantitative easing.'

Monetary inflation means that more money is around with no increase in what it can buy. Thus, the value of the money (dollar) decreases. Along with the drop in the value of the dollar, the price of gold and silver increase, as do the price of commodities (beans, wheat, meat, etc) and other metals besides gold and silver. And of course, oil.

Monetary inflation turns into price inflation as the price of commodities increase, even if deflation continues.

I will now review the evidence.

The economy has slowed as the regime's stimulus becomes less effective and as the regime's policies discourage investment in the economy. The regime's apologists trumpeted a "Summer of recovery," but instead of that, we saw the beginning of STAGNATION. Growth was forecast as 3.5%, but it was revised to 1.5%. Then it was revised to 1.6% and celebrated as much better than expected. STAGNATION IS HERE.

The first graph shows the price of gold. The rise in gold prices is obvious. Gold reached a new record price of $1,320/oz last Friday. The rise in silver was even more dramatic and it closed at $22.10 on the CRIMEX. (No graphic needed to dramatize the change from $18 to $22/oz silver).

The next two graphics show the drop in the value of the US Dollar. You can see the closing of the Dollar below its previous low. The third graphic down shows the breakdown of the head and shoulder formation in the value of the dollar and predicts the Dollar to fall below 72 on the dollar index. The current value of the dollar is 78 on the index.

The fourth graphic is the price of crude, oil that is. You can see an upward bias in higher highs and higher lows. The fifth graphic shows a similar pattern and clearly indicates that oil has broken out of its recent pattern on the upside. Note also that smart money is buying up oil contracts. Oil price is forecast to hit $95 by Christmas. The regime wants higher prices.

Finally, what about the Stock Market? Accompanying the yet secret quantitative easing by the FED, the Stock Market is also breaking out. The next to last graphic shows the formation of a new "golden cross," the crossing of the 200 Day Moving Average by the 50 Day Moving Average. The last graphic shows the breakout of the Industrials from a reverse head and shoulder formation. This forecasts higher stock prices.

Summary. The Markets are now in sinc. The slowing of the economy enters us into STAGNATION. Monetary INFLATION is shown in the continued rally in gold, silver, metal and commodity prices. Price inflation is still down the road, but it has begun. Everything is being recalibrate in the terms of a cheaper US dollar, even stock prices (which are rising as the value of the dollar drops).

Putting this another way, stock prices are decoupling from the economy and are now driven by the falling value of the US Dollar. PRICE INFLATION will now increase. Finally, the stage is set for another round of increases in metal prices lead by silver and gold. The panic phase in gold prices should occur in 2012, but we should have substantially higher gold prices in 2011. In the panic phase, gold miner stocks should decouple from the gold price and go into the stratosphere.

Markets in sink.

We see the Markets moving in response to a yet secret Quantitative Easing. Gold is rising, silver is moving even faster and oil has reached $80/bbl. At the same time, the dollar is dropping at a rather fast rate. All the Markets are now in sinc.

Irish eyes are NOT smiling.

The unraveling of paper currencies continues. Ireland's spread between its bonds and German bonds hit an all time high, which means that Ireland has to pay a lot of premium to roll over its loans. But, the Irish do not have the capital and will have to be bailed out. Cost? A reported $25B. Doable? Perhaps. But, the Markets are already lining up Spain for a hair cut. Spain's debt has been downgraded and its inability to pay will become clear shortly. Of the EU members, none is keeping within the required 3% annual deficit. Which means, more money printing. Will the German banks absorb the cost? Unknown at present.

Gold has moved to $80/bbl. We have seen this pattern a number of times - oil moving up to 80 then backing off. However, oil is now rising in context of a falling dollar and so the oil price may stay above $80/bbl as we go forward.