The inflationary/hyperinflationary path is now precisely the road we’re going down, given the trillion-plus dollars by which the Fed has grown its balance sheet over the past several months; it will likely grow an additional trillion early next year.

The Fed’s latest experiment in actually monetizing agency debt and agency-mortgage backed securities is just more inflationary icing on the cake. By the time the herd realizes that this liquidity cannot be withdrawn, gold will be in the high triple digits, and gold stocks will have risen multiples of not only their prices today, but also multiples of their 2008 highs, as well.

As for a squeeze speciifcally in the February gold contract, I’m not sure. But in the near term, I'm watching the “monkey zone” on gold.


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This is the zone in between the 2 final downtrends on gold’s chart - the place where the chart monkeys will begin to get interested in gold again. Several well-known chart monkeys have already flip-flopped as of yesterday, and apparently have gone from recommending gold as a “short” just last week to now recommending putting a toe in on the long side.

Why the sudden change of heart? They’ve turned slightly bullish simply because we’ve entered the “monkey zone.” As we cross through the $900 to $930 area, these same monkeys should turn into rabid bulls once the downtrend is broken, thereby providing enough fuel (along with short covering and new bulls coming into the fold) to take us to a new all-time high. My bet is that the new high will come sometime in January.

As for backwardation, the 3M GOFO continues to dangle just above the zero line (below which would indicate official backwardation), and it’s a good bet that we will see gold once again move into backwardation as it trades back just as it briefly did back in November when the dollar index topped out and gold’s current rally kicked off.


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The fiat dollar-based monetary system in place since 1980 is collapsing before our eyes. All the historic currency volatility of the past several months confirms this, in my view. History tells us that when a monetary system collapses, the world runs to gold. As we can see in the chart below, that's what's happening now, as well. Note the new all-time highs gold has already made in both Canadian dollars and British pounds over the past several weeks.


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In short: Will 2009 be a golden year? I suspect it will be, but then, I'm long gold and gold stocks going into 2009 (just as I was going into 2008). So perhaps I'm biased.

But with gold having closed higher every year for the past 7 years (and looking to do so again this year), the trend is your friend, as they say.

Until that trend changes, don’t fight it. Embrace it.


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