Ed Note: This excerpt is from the Great Richard Russell who also penned the Red Alert that Michael Campbell wanted everyone to read. 

I recently viewed the great History Channel series “The Last Days of WWII.” In one scene a group of Americans were surrounded by Germans. One of the Americans was wounded badly and cried out in pain in a loud voice. The sergeant came over and whispered in his ear “Keep it up you fool and we’ll be discovered. TAKE THE PAIN, TAKE THE PAIN.” That phrase echoed in my mind over and over again. “Take the pain.” That’s what American population and pols have been unwilling to do. To undo 60 years of inflation, they refuse to take the pain. We’ve refused to take the pain ever since WWII. A great group of bubbles has been created since WWII. But they are starting to pop one by one. The biggest bubble of all, the debt of the US. That debt must be addressed. To address that debt and all of the debt that has enveloped the US we must absolutely take the pain. Which is why I label this site, “Take the pain.”

That’s what nobody wants to do, and the politicians serve the people by keeping money flowing to avoid the pain. Question: Why is it that you never see compounding and debt mentioned in the same sentence? Answer: Because it is a poisonous combination due to the new trillions that have been pumped into the US economy. Based on the massive amount of money pumped into the US economy inflation should start to appear in 1-2 years. With inflation comes higher interest rates. Rates are synthetically low today but by 2013 they will be rising along with inflation. This is when the compounding of the debt starts. 

The US National debt is at 16 trillion, 40 percent of the debt matures in one year or less. The average maturity of all US debt is 4.3 years. All this debt has been rolled over at historically low interest rates. This is going to change. As inflation accelerates, rates move higher. The entire tax-take of the US is now 2 trillion. This is a tiny amount compared to the cost of interest on the national debt. In other words, the US will have to borrow huge amounts of money in order to stay solvent. The national deficit is increasing annually by more than 1.5 trillion per year. Thus the tax-take doesn’t begin to cover the interest on the debt. Within a few years a massive amount of money that is pumped into the economy by the Feds will set off inflation. With inflation, interest rates will rise. 

Remember the entire federal debt must be rolled over every few years. It will roll over and compound with rising interest rates, a death knell for the US economy and the dollar. As the process continues, the exploding and compounding national debt will crush everything in its path. The dollar will collapse, and the US will no longer be able to borrow the money needed to cover its interest and expenses. The stock market is not going to wait for these events to materialize. It will start discounting the trouble way before it happens. I see any rallies (as the one we’re seeing today) as oversold bounces and they should be sold into. 

The preferred position is no stocks, gold, and 10 ounce silver bars with some cash for practical purposes. We are headed for uncharted waters and in time all central bank created currencies will be crushed. Gold is the only currency that is not someone else’s liability, and it should be accumulated. 

In the end, the problem is neither the US population nor its politicians are willing to take the pain. There are no free lunches, and there are no corrections with out pain. The pain is set in stone. It’s appearing now in unemployment and loss of purchasing power and spreading poverty.

1.     Gold continues to do battle with the dollar bugs at the $1700 marker.  The action in the $1530-$1920 price block is really the battle for $2000 gold, and there are some significant similarities with the battle for $1000 gold.

2.    Who would have thought the decline into the lows of 2008 would form the head of a massive head and shoulders continuation pattern, one that would power gold 90% above the $1000 platform, to a mind boggling $1900 an ounce?  

3.    Maintain a mindset of mild confusion, so you are prepared to handle whatever the next legs of the crisis bring, rather than trying to predict your way through it.  This crisis, and the role of gold in it, is only just beginning.

4.    What will the current battle zone end up looking like, technically, and how high will it propel the price of gold?  The answer is unknown. 

5.    What is known is that substantial patience and professionalism are required for victory, in your personal battle for gold $2000.

6.    The main difference between the battle for $2000 and the battle for $1000 is the decline of 2007-2008 was probably akin to a battle with financial terrorists, while the current battle is more like a battle withfinancial cancer. 

7.    I’ve termed this battle the “gulag”, and it is very clear that only those with the very largest amounts of intestinal fortitude are going to survive, let alone prosper.  2008’s financial war heroes are tough.  2011’s financial cancer heroes are just as tough, and probably tougher. 

8.    Because most of the gold community are heavily invested in juniors, the battlefield is extremely bloody.  The junior mining charts look like a wasteland.  Many of our mining stock  soldiers are dead or comatose.   

9.    I believe the “reinvigoration number” is GDXJ $50.  Without that price, it will be difficult for many companies to continue to raise cash.  Do I think it happens?  Yes.   

10. Let’s take a look at the action on the gold battlefield, and look for signs of possible coming victory against the dollar bugs.  Click thisgold battlezone chart now.  Note the action of MACD around the zero line, where we are now.  

11. When price is hammered, but then an MACD crossover buy signal occurs, this indicator will often go back onto a sell signal just above the zero line, but only briefly before crossing back into a buy signal. That may be what is happening here.

12. In September, team “seasonal” was taken to the woodshed by the dollar bugs.  Gold typically rallies very strongly in September, but it didn’t happen this year.  Instead, the dollar bugs beat on gold.  That failure of one of the favourite seasonal plays has spooked gold investors. 

13. Seasonally, mid-November through year-end is another very powerful time for gold.  It’s important that you use the seasonal indicators professionally.  Buy decline in price, not “it’s supposed to rally now, because the calendar says so” theories. 

14. You can see the gold price moving back and forth around the amber HSR (horizontal support/resistance) line I’ve highlighted near $1700 on the chart.  Gold for February delivery traded at under $1680 last week, after declining about $120 from the $1800 area.

15. Without weakness in advance of a seasonal play, it is financial suicide to wade in with anything but wild gambling money.  You got that weakness last week, into that amber HSR line, and below it.  If we get a good jobs report number this week, and I think we will surprise on the upside, then gold could really start to rally.

16. Jobs report day isn’t necessarily negative for gold.  Volatility grows as the time draws near for the report to be issued, but an upside surprise coming during gold’s strongest season can spark enormous price moves to the upside.

17. Click this stock market chart now.   While the situation in Europe disintegrates, the Dow seems resilient.  It is discounting that news. Are the stock market’s power players looking ahead, at potential money printing and QE3?  I think so, and crash season for the stock market is over. 

18. When it comes to the Dow, the bottom line is that team shorty pants needs to stand down, before they are mowed down, and a move over 12,250 on the Dow could be hugely bullish for gold stocks.

19. I believe a sea change in financial markets is at hand.  Waves of institutional liquidity may be about to flow into markets that are really a value player’s cornucopia!  Wheat is down 40% in a year, uranium is through the floor, natural gas is in a coma, and silver has been down almost 50%.  The list goes on, and for the institutional value player, it is a shopping list. 

20. Institutions place large amounts of capital at the start of the year. That’s just four weeks away, and these prices on high quality assets are too good for many institutional money managers to pass up. 

21. Throw in the possibility of substantial greasing of the liquidity wheels by the Fed and the ECB, and an immense “risk on” move could be at hand.

22. Click this short but key GDXJ video update now.  This technical set-up is apparent on a multitude of junior gold stocks, and seems to confirm my view that massive institutional liquidity flows are near at hand.

23. $50 on GDXJ is the number required to breathe life back into the gold community, and you’ll get it!  When you do, learn from the lessons of this crisis, and cut back on the trading of gold juniors. 

24. Don’t buy your own feelings and label them analysis.  When junior stock prices rise, you need to stand down from the madness of flip trading them.  Don’t use mine reports to justify chasing massive bouts of price strength.  Prepare now to fight the greed demon, because he will return, and much sooner than any you think is possible!   The senior and intermediate gold stocks look very good here as well.  As I sign off this morning and hit the price gridlines, click this   GDX blastoff video now.  Thanks!

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