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The Federal Reserve is Asleep at the Switch


Eric King

“Let me give you some reasons why I am focusing so much on the dollar. Here in Europe they have started acknowledging the growing inflationary pressures. As a consequence the ECB yesterday raised interest rates a quarter of a percent. It’s a small step but going in the right direction. What the readers globally need to understand is that what we are seeing is a trend change in interest rates, a directional change in the cycle.

So it is not too surprising to see the Euro breaking above the $1.42 level that we discussed in our last interview. That was an important tactical point and suggests that the Euro is headed toward the $1.50 mark. Meanwhile, on the other side of the Atlantic, the Federal Reserve is asleep at the switch because they contend there is no inflation. Here we have crude oil prices at $112 a barrel and gasoline prices are putting a big dent in the consumer’s pocketbook.

It is important for the readers to understand that there are two “dollar destroyers” at work here. In addition to the Federal Reserve, the politicians in Washington DC are spending money so quickly that the federal deficit for the first six months of this year has already eclipsed the first six months of last year by roughly 10% despite promises to control spending. These twin “dollar destroyers” have created a significant possibility of a waterfall decline leading to an earthshaking dollar collapse.”

When asked about the ramifications for gold James Turk replied, “We finally broke through resistance of $1,440 and in my opinion we’re starting to see the beginning stages of an upside explosion in gold. It’s sort of amazing to think that here we have gold at record highs and it still hasn’t yet caught the public’s attention.

There is no frenzy, there is no bubble mentality. One can only reasonably conclude that it is still early days in gold’s bull market. But it will be interesting to see when gold hits my $1,800 target if it begins to awaken the masses.

As soon as the XAU breaks its previous high of 232.72 this will confirm the new highs already made in gold, silver and the HUI. Get ready for an upside explosion in the mining shares; I expect it will breathtaking.”

When asked about silver Turk remarked, “The natural question now that we have broken through $40 on silver is whether $40 will emerge as a barrier? Given the positive backdrop for silver I don’t see why $40 should be a barrier anymore than $30 was. I just see it as a stepping stone on the way to my target of $50 which I still think is possible by the end of June.

You know there can be a temptation to sell when you see prices so much higher than they were just a few months ago, but that is more of an emotional response rather than a logical one. What you need to focus on is value, not price. Here is the important thing Eric, even though the price of gold and the price of silver have been rising, they still remain exceptionally good values. The reason these monetary metals are undervalued is because the Federal Reserve continues to debase the dollar.

As you are always so fond of saying Eric, the line from the great Jesse Livermore really applies here: “Be right and sit tight.”

Jesse Livermore had many great lines, but another legendary trader Jim Sinclair commented in a King World News interview that the eventual mania in gold, “Will light your hair on fire.” As Richard Russell has also remarked, it takes incredible patience and a strong stomach to stay in a bull market from start to finish, this is why so few human beings are able to accomplish this remarkable feat.

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