Why Governments should Like Gold

Consider why governments should like Gold:

1) Gold acts as the perfect sponge for money/liquidity. Money put in gold does not really affect the broader economy like money going into oil or treasuries does; money put into Gold goes absolutely no where except into Gold. This is the primary reason governments do not like Gold in deflationary periods because it acts a dampner on their money printing purposes.
2) You can easily assess the value of another nation's currency by how much gold they have. If I have 400 tons with $1T in circulation and you have 800 tons with $1T in circulation, it's pretty easy to determine that your currency should be worth more than mine. With floating fiat currencies, determing actual, absolute levels of trade on a global basis is difficult at best.
3) You can always trade your gold to another nation for goods or services required. For example, a war or some oil.
4) Whether we want to admit it or not, ultimately a nation's status is based on two things -- what they have already and what they can produce. We can talk all day about intangible things like "free speech" and "rule of law" but at the end of the day, and I admit only over the short run, what a nation has and what it can make are most important in determining its next 5 years. Gold is something that productive, wealthy nations should have. Gold is something that Gold producing nations can extract. The value of their nations [currency] is intrinsicly higher than those who have not. That value ultimately largely determines who would be victorious in any sort of battle -- whether it be trade or military.

My country, The United States of America, at least on paper (if you want to believe some of the consipiracists who say the Gold out of Fort Knox has been moved or sold, be my guest), has the world's largest Gold reserves -- far and away. I also find it interesting that the United States in the past 60 years has not really been a net seller of gold either. What does that really tell you about what the US Government truly belives about Gold?

When push comes to shove, the precious metals are one of the most tangible things a nation has in its economic arsenal for trade in times of last resort. Our government knows that. Do you?

Another classic CNBC quote: “Dollar back to normal pre-crisis levels”

So the dollar broke below another critical support level at 75 and set another 15 month low at 74.7 intraday today… It closed back above support at 75 but that is not the point.

The folks on CNBC actually had some bear on and he was talking about the dollar crisis. After he got off the air all the CNBC cheerleaders, oops I mean commentators said… “I am not sure why people are worried about the dollar just getting back to “pre-crisis” levels.” I heard the same thing on Fast Money a few days back.. When Tim Seymour was asked what he thought about the dollar falling he said it is nothing to worry about because all the dollar is doing is getting back to “normal, pre-crisis” levels at 72.

So that is the manta on CNBC now… When anything bad is said about the dollar falling it is ok because the dollar is just getting back to “normal”. These pump monkeys must think we are all idiots.

I have highlighted some charts to illustrate CNBC’s idea of “Normal levels”. Notice my red circles. First the 10-year US dollar index chart:
http://img687.imageshack.us/img687/7430/10yearsdollar.png

Now the 30-year US dollar index chart: http://img39.imageshack.us/img39/1893/since1981.png

(Note: If you cannot make out this chart it starts at 1981 and the peak in 1985 is at an amazing 164.72)

72 is NOT the NORMAL level for the US dollar. It is the ALL TIME HISTORICAL LOW.

Do these pump monkeys have short memories? Why was oil at $147 in 2008?? It is simply because the dollar broke below 72 and looked like it had no support and people PILED into every ANTI-dollar trade. Sorry peak oil folks, this is what I strongly believe. Why is oil over $80 now even though we have ran out of places to store it in the U.S. and demand is next to nothing? Because the dollar is at 75 and people are piling into the SAME ANTI-DOLLAR trades.

If the dollar were to break 72 again Oil would be back to $140 even without any demand. This is not a healthy situation and it sure as hell is not "NORMAL".

PS: If you are curious about my opinion of the stock market even though the dollar has been turned into confetti my bearish view remains the same. The Russell 2000 peaked WAY back in September and still has never taken out that high. Even as the S&P, Dow and Nasdaq make new highs every day on thin volume and narrow leadership the Russell is actually FALLING away from its CLEAR double top. If IWM (Russell 2000 index) breaks out I will be a believer for the short term yet again. The top 2000 stocks is a much better index for charting breakouts and breakdowns because it is the real measure of “the market”.
See the chart below:
http://img32.imageshack.us/img32/2833/iwm.png

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