Liquidity crunch hits the West.

The REPO RATE (the discount rate of repurchasing govt security by the central bank) is a measure of the money supply. To temporarily increase the money supply the central bank reduces the repo rate. This was done in 2008 when a liquidity crunch hit the West and it is being done now. The cause of the liquidity crunch is the European financial crisis that drives people into dollars. Consequently, the Dollar Index has skyrocketed to 80.57 this morning, (abrogating its double top) and sent gold into a free fall, flirting with the 1,600 level. This then continues with the gold breakout on the downside.

Larry forecast the drop in gold and the increase in the Dollar Index. He forecast that the Index may hit 82 and that gold may fall past 1,500. According to Larry, gold will hit bottom in February, which is the forecast rate for the end of the Euro. The fall in the repo rate tells us that the FED is pumping out money to keep European banks afloat, but the ECB must digitize more Euros if that currency and the banks are to be rescued.

The rate of fall in gold also tells us that some country (perhaps Italy?) is selling gold big time, although it is the paper gold market that is being liquidated. These are interesting times.