Gold is getting frothy

Bob Moriarty
Archives
Nov 18, 2009

We live in a world that is totally insane. We have one US government agency buying worthless paper from another US government agency and the public nods their heads in agreement just as if it makes perfect sense. It doesn't make any sense at all; it's like taking water from one end of a swimming pool and carrying it down to the other end and believing you are making a difference.

Pundits are proclaiming an end to a most mild recession, deeming it "Green Shoots." Are they color blind? How about "Black Shoots?" How about 22.1% unemployment if you use the real world measurements derived by John Williams of ShadowStats.com?

The general stock market has rocketed higher since March of this year. It's way overdone and due for a monster crash. This isn't a mild recession; it's a World Class Greatest Depression. Once the Chinese discover the way the US has Madoff with their very real goods in exchange for pretty pieces of paper that can never buy anything real, the game will be over.

According to the BIS, the notional value of OTC Derivatives increased by 10% or $57.2 trillion dollars to an incredible $604 trillion in the six months to June of 2009. So we have an annualized gain of 22% in the midst of the Greatest Depression in history. That's insane.

In 1998 the head of the CFTC saw a looming disaster on the horizon. OTC derivates were up to the incredible amount of $27 trillion. That number should have been alarming to anyone thinking about it. The GDP of the world was under $50 trillion. How could you have unregulated financial bets almost half of the value of the goods and services produced yearly in the world? Brooksley Born failed in her attempt to regulate Derivatives. Now derivatives grow twice as much in a year as world GDP and no one gets it.

Gold and silver are getting frothy. Almost as frothy as December of 2004 when the precious metals began a sharp correction. A few people saw it coming and said so.

The dollar is dying but not dead. If you drop a cat off a building high enough, even a dead cat will bounce. The dollar is dead but due for a bounce with the impending credit crisis just around the corner.

The precious metals shares have me baffled. If you look at a chart of the XAU over gold, the shares have been at record lows compared to the price of gold since September of 2008. With a $120 rise in gold in the last two months, gold shares have barely moved. So they are still cheap in historical terms but weaker than I would imagine based on the POG.

The general stock market is beyond frothy. It's totally bonkers and only the fools of the world are long the stock market.

Bob Moriarty
President: 321gold
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