Any psychoanalyst looking at the behavior of investors today would see clear strains of schizophrenia in a comparison between the markets for gold and US Treasuries.

Currently, the 10-year Treasury yield is setting new lows on a daily basis. In the financial models all economists were taught at school, this would be an indication of an economy with low inflation expectations and a strong currency. But the dollar has fallen over 12% since June, and the price of gold continues to hit all-time highs. These results are completely antithetical. Bonds are flashing a warning sign of deflation, while gold and the dollar presage hyperinflation.

During the last period in which the US experienced significant economic stress, the late 70’s and early 80’s, the markets in gold and Treasuries showed a much higher degree of harmony. At that time, the Fed’s extreme depression of interest rates led to rapidly rising inflation, a weakening dollar, and a massive spike in the price of gold. More significantly, yields on Treasuries soared as investors demanded higher rates as compensation for the added inflation risk. In other words, everything made sense.

Beginning in January of 1977, gold began an epic bull market which ended just prior to February of 1980. In that time, the metal soared from $135 per ounce to just under $860 per ounce, and the Dollar Index lost about 20% of its value. Yields on the 10-year Treasury soared from 7.2% in January of 1977 to 12.4% in February of 1980. This occurred in an environment where the Federal Reserve – under Arthur Burns – pursued an inflationary monetary policy. He increased the monetary base from $62 billion to $114 billion in just eight years.

Today, the environment is similar to what the country confronted 30 years ago. Like then, our monetary base has surged – but this time even faster. Instead of merely doubling in eight years as it did under Burns’ watch, Alan Greenspan and Ben Bernanke have tripled the base in twelve years (from $621 billion in 2000 to over $2 trillion today). Accordingly, the dollar price of gold has more than quadrupled, from $280 per ounce in 2000 to over $1,300 today. Over that time, the dollar has registered a 35% drop in value. However, in stark contrast to 1980, the yield on the 10-year Treasury note has collapsed from 6.6% in 2000 to less than 2.4% today.

A nation should only be able to enjoy ultra-low interest rates if it has a high savings rate, stable monetary policy, low inflation, and very low levels of debt. The US savings rate, which had been range-bound between 7.5% and 15% during the ’60s and ’70s, now stands at just 5.8%. And that rate reflects recent belt-tightening in the wake of the credit crunch. The personal savings rate had been negligible and sometimes negative from 1998 thru 2008. Washington’s current annual budget deficit is 9% of GDP and the national debt is 93% of GDP. And, of course, the Fed has – in its own words – undertaken “unconventional measures” to push up inflation. Therefore, none of the conditions that should engender low interest rates currently exist.

Clearly both gold and the US dollar agree that Ben Bernanke will be victorious in his quest to foment robust inflation. But Treasury investors seem to believe that despite its current inflationary disposition, the Fed will be able to either: A) hold down interest rates for an extended period or B) withdraw its liquidity before things get out of hand. To take this position, one would have to not only believe that the forex and gold markets have it wrong, but also think that the Fed’s printing press will lose its power to depreciate the currency. This is a seriously misguided set of assumptions. Bernanke asserts that the Fed brought on the Great Depression by allowing the money supply to contract by 30% after the Crash of 1929. He has also written that the Depression relapse of 1937 stemmed from Washington’s attempt to balance the budget and raise interest rates. Therefore, I can reasonably assume that he will not stop the presses until inflation has a firm and undeniable grip on the American economy. Many currently believe that ‘Helicopter Ben’ has yet to ignite inflation on the ground because the money he dropped from the sky is still stuck in the trees. In other words, the funds are caught in the banking system and not spreading among the populace. Yet, M1 is up 6.2% YoY; and, in the last two months, the compounded annual rate of change in M2 is 7.4%. Although these single-digit increases do not yet indicate runaway inflation, a program of relentless quantitative easing has a conclusion as predictable as driving 100mph around an icy mountain turn. Since the Chairman has shown no will to hit the brakes, you’d have to be mad to ride the yield curve alongside him.

Mexican-based precious metals miner Fresnillo plc (FRES.L: News ) reported Wednesday that its attributable silver production for the third quarter edged up 1.1% and gold production surged around 44% from last year, both to record new levels. The company also said it remains on track to achieve full-year production target.

….read more Mexican Gold Increase HERE

Richard Russell: Stocks and gold have been climbing on the rumor that the Fed is about to embark on its newest adventure, known as quantitative easing number two or QE2 (it always sounds less harmful when it’s reduced to letters and numbers).

And cynic that I am, I’m thinking that everything (stocks, gold, bonds) will correct on the actual news. Fed Chairman Bennie Bernanke must be thinking, I’ve got a mandate to keep the dollar steady and to implement full employment. If I open the monetary spigots and keep short rates at zero, this blankety-blank economy has got to lift off. If it doesn’t, then what the hell, I did my best, and it’s not the end of the world or the end of the US. And if the dollar swoons, so what. The next administration can deal with that, and I’ll be back at Princeton teaching those smart-ass kids about the economy. And this time I’ll have “former Fed Chairman” on my teaching credentials. So get off my back, I’m doing the best I can, and I’m doing what boss Obama wants me to do.

Richard Russell has made his subscribers fortunes. One of the best values anywhere in the financial world at only a $300 subscription to get his DAILY report for a year. HERE to subscribe. Amongst his achievements Richard was in cash before the 2008/2009 Crash and he has been Bullish Gold since below $300

Gold Surges After Japan Says It Is Considering New QE And Geithner Guarantees Currency Wars

via zerohedge.com

A quick look at gold price action demonstrates that someone somewhere is actively debasing currencies. An even quicker scan of headlines confirms this to be the case: per Reuters “Bank of Japan Governor Masaaki Shirakawa said on Wednesday the central bank will consider expanding a new scheme for buying assets ranging from government bonds to exchange-traded funds when deemed necessary.” Harakiri Shirakawa continued: “We have taken a very bold measure … If the need arises in the future, making further use of the new fund as part of monetary policy is one of our strongest policy options.” Judging by the chart below, either gold has a tent in its pocket or was really happy to hear this announcement.

….read more HERE

Buy and Sell recommendations should be added at the recommended price.
The Surge Index System Buys Weakness and Sells Strength

Super Force Gold Bullion Analysis:

Gold has a Surge Index 100 Sell Signal as of Oct. 1st. This is the maximum Surge Sell Signal.

1. Repetition is one of the key building blocks of excellence. Factory owners know that replicating a small profitable production line with a big one is the key to massive expansion. Easier said than done.

2. Some say that repetition is boring, but if you ask a soldier in combat if repetition is boring, the answer is, altogether now, “No!”.

3. In the market, buying price weakness and booking profit into strength seems boring, until you actually do it. Then you find yourself in a near life and death battle with your emotions of greed and fear.

4. Martin Armstrong has wondered out loud whether gold stands to break upside out of the defining bull market up channel. Or, whether it stands to collapse back to $1000 before blasting to new highs.

5. Most gold market investors don’t have any tactics in place to handle either scenario, and are really counting on Lady Luck to carry them through the remainder of the bull market.

6. It’s very important that investors remain extremely calm and rational. When you handle large sums of money for people, and I do, you need to bring a level of professionalism to the table that takes into consideration the hopes and dreams of investors, while managing risk at the same time. Again, easier said than done. You cannot be ruled by your emotions. One mistake can create a huge catastrophe. I’m personally not interested in being involved in a market catastrophe, not at all, and I don’t subscribe to the mantra, “well, everyone is in the same sinking ship as I am”.

7. Here’s a wakeup call for those of you who feel you are missing out on gold’s move:

8. You are.

9. You failed to buy any gold on any correction for the past 10 years, and now the big money is in gold stocks, not gold bullion, and you are stuck in the bullion trough, stuck on the wrong road, stuck chasing price, again. It will end horribly for you, another failed price chase, followed by another session of massive loss-booking, from the fetal position.

10. Here’s how to prevent that horrific future from occurring: Get your hand off the gold bullion buy button. What are you doing? Just the fall into $1200 from $1266 caused massive loss-booking!

….read 11-24 HERE