Bugs Triumphant About Gold, Terrified About U.S.

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"What does Bernanke see that he would expand the Federal Reserve's balance sheet by another $1.2 trillion? What is he not telling us?"

Last Wednesday's Federal Reserve debt monetization announcement was the event gold bugs have been anticipating all their professional lives, or at least since the last gold bull market blow-off 30 years ago. They are triumphant - and terrified.

Australia's The Privateer said on Sunday: "On March 18. . .U.S. Fed announced plans to begin to buy U.S. government debt paper with Federal Reserve Notes (a.k.a. U.S. Dollars) created out of thin air. . .On our Web site, we announced that decision as the 'END GAME.' That is precisely what it is."

Dow Theory Letters' Richard Russell was even more dramatic. On Friday he said:
I've written in the past that if you want to make 'BIG' money in the market, you have to take an over-sized position and be dead right on the trend. The last time I did that was in late 1958. . . .I did extremely well on that fateful ride, and I never again had the nerve to take that large a position - until now.

I started building my gold position in 1999. . . .My gold position now is comparable to my market position back in 1958. . .maybe 30% of my total worth. Why have I done this again?
  1. I believe gold is in a major or primary bull market. I believe the gold bull market is currently in its second phase. This is the phase where sophisticated and seasoned investors and the funds enter the market.
  2. If there is only one bull market in progress, it will attract broad new coverage and attention - just as Thursday's $70 rise in gold did.
  3. I believe the bear market in stocks will continue erratically and the deflationary trends will persist. . . .Bernanke will stop at nothing (including massive printing of dollars) in his effort to halt deflation.
Some gold enthusiasts are even sensing that gold shares might start outperforming gold - after a long phase of dismal relative behavior.

But while the gold bugs are triumphant, they are terrified about the implications for the U.S. economy.

James Turk wonders: "How bad is it out there that the Fed would take this big gamble to risk hyperinflating the dollar to try saving insolvent banks? What does Bernanke see that he would expand the Federal Reserve's balance sheet by another $1.2 trillion? What is he not telling us?"

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