Quick Recap

Sorry, for the lack of regular updates. My sister came over from Russia, and we went together to visit our grandmother in Los Angeles. I ended up having a lot less free time then I expected. Anyway, I am travelling back home tomorrow, but I will be back to my regular blogging pattern starting Sunday.

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Quick recap:

Nothing has changed on my views of the dollar and gold.

I believe the next phase of the economic crisis will be a rapid acceleration in the velocity of money. Right now, the flow of money through the economy is basically frozen: everyone is panicking into treasuries due to deflation fears. Negative yields on the 3 month treasuries are a sign of this.

Despite the glacial rate money is moving through the economy, the dollar has started to fall again, and gold has begun to rally. As this continues, investors will begin to questions the safety of treasuries, and sell them off. The money coming out of treasuries will add fuel to gold's rise and the dollars fall. Once the dollar hits new lows and gold breaks convincingly over $1000, Investors expecting deflation will begin to panic, and a flood of money will come out of treasuries. It is then that hyperinflation will begin in earnest.

More on this Sunday.

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UPDATE: December 13, 2008 2:37 AM

Thanks to Michael Edward for pointing out that SILVER has been in backwardation for five days:

http://lbma.org.uk/?area=stats&page;=sifo/2008sifo

Peter Coop's Analysis:

http://arabianmoney.net/2008/12/11/what-does-backwardisation-mean-for-silver/

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0 Responses to Quick Recap

  1. de Sousa says:

    Eric,

    Thanks for all your work here, this blog is a sort of lighthouse in these confusing times. I have a question: did gold and silver went into backwardation in 1980? I've searched for data on this but couldn't find it.

    Thanks for you help and regards.

  2. Anonymous says:

    I think at least short term, the money moving from treasuries will find its way back into stocks and gold.

    Just as the dollar led this round of deflation, it now shows significant technical damage to the downside. Couple that with an oversold condition in the stock market and strong relative strength on bad news (the impending failure of the Detroit automackers barely caused a blip) and I think your looking at a rally lasting about 3-6 mos. till the low to mid 10000s level then who knows? Depends I guess on the dollar fundamentals, but I think we may be dealing with inflation again, only more severe. At some point gold and equities are going to de-couple with gold going to the upside and equities to the downside.

    Gold should start making a move to 1500-2000 level, oil at 150-200 dollars a barrel and gas at 5-7 bucks a gallon, thats just the next level, eventually gold at 4000 dow at 4000 oil at 400 and gas at10-12 bucks a gallon with about 15-20 percent unemployment and not sure about inflation but high double digits.

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