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You can know a few things, or you can have technical analysis

Section: Daily Dispatches

1:18a ET Thursday, February 22, 2007

Dear Friend of GATA and Gold:

Some of us grunts in the gold army don't believe in technical analysis. To us it's just a bunch of entrail reading, astrology, and illusion, because the markets themselves now are mainly illusions.

Oh, we may speculate in the markets from time to time -- like every 20 minutes or so, or when our Viagra prescriptions run out -- but we figure that the exchange rates of the dollar and all the currencies and the prices of what Mike Bolser calls strategic commodities are not the results of the collective decisions of masses of traders in the futures pits but rather the results of entirely POLITICAL decisions made by the elites in chancelleries around the world. Those elites decide how much more paper and electronic digits and unfulfillable promises and real commodities will be pumped into the futures pits, whereupon the futures pits will pretend to determine prices.

Our advantage, such as it is, is in knowing -- believing, anyway -- a few things:

1) That the power of central banking is almost entirely the power to debase currencies. This is not always quite as bad as our side makes it seem, for our side overlooks that, for example, the United States, from its founding in 1776 through the attack on Pearl Harbor in 1941, had a catastrophic or near-catastrophic deflation on average every 10 or 15 years, during which many farmers and other real property owners were foreclosed on, industry and commerce collapsed, and there was much misery. The Federal Reserve system was created in 1913 in large part because J.P. Morgan -- the banker, not the predatory bank now bearing his name -- got annoyed at all the begging of the secretary of the treasury for gold loans to keep the U.S. government solvent until the latest panic subsided. As economists as diverse as Milton Friedman and Ben Bernanke have acknowledged, while the Fed failed its first big test in the 1920s and '30s, ever since then it has been inflating away, confident that deflation is no longer a possibility.

2) That money creation around the world has gone exponential in the last decade and as a result the ratio between money and real things has never been so out of whack.

3) That central bank gold can be dishoarded to keep the gold price down only until it runs out, and that while derivatives -- paper promises to deliver something -- can suppress prices for other real things as well, those other real things can run out too.

4) That the world will tire of being slaves to the issuers of the dollar and will find some other mechanism with which to conduct international trade, a mechanism that confers no advantage on any one nation and whose overhead is a fraction of the overhead imposed by the dollar. This mechanism easily could be gold, revalued sharply upward, or it could be something else. This change of trade systems may not happen for years, but it could happen tomorrow and indeed WILL happen when those who have had to use dollars without also having had the privilege of issuing them decide to make it happen.

5) That this will be entirely JUST, a resolution of the struggle between right and wrong. Those are, as Lincoln said, "the two principles that have stood face to face from the beginning of time, and will ever continue to struggle. The one is the common right of humanity, and the other the divine right of kings. It is the same principle in whatever shape it develops itself. It is the same spirit that says, 'You work and toil and earn bread, and I'll eat it.' No matter in what shape it comes, whether from the mouth of a king who seeks to bestride the people of his own nation and live by the fruit of their labor, or from one race of men as an apology for enslaving another race, it is the same tyrannical principle."

6) That this will be better for the United States too, since the imperial dollar -- "money for nothing, and your chicks for free" -- has corrupted and demoralized the country and crippled its industry, enterprise, and initiative.

7) That most of us under 60 are likely to see the resolution of this struggle and, if we invest accordingly, we'll not only be able to say we were right but also will be able to afford our own nursing home care -- at least in Panama or Guatemala.

But if you really MUST have technical analysis, there's some pretty good stuff arising from Wednesday's spectacular turnaround in gold and silver:

-- Michael Kosares, proprietor of Centennial Precious Metals in Denver and sponsor of the Forum, writes that "gold is telling us that something has been altered in the collective global psyche about the value of money." In "What is Going On With Gold?," Kosares charts a reverse head-and-shoulders formation in the gold price that predicts a major move up:

-- Over at GoldSeek, Clive Maund sees "Commercials on the Ropes" and a likely panic as short positions are covered by those who have considered themselves the Masters of the Universe:

-- Jim Sinclair, maybe the most venerable and experienced trader among us, writes in his "Gold and Market Summary" for Wednesday that "gold is going to $761 now, but be assured it will attempt to shake you out at every turn." Sinclair expects volatility in gold approaching $150 per day:

-- Jason Hommel of Silver Stock Report asks "How Low Can Gold Go?" and figures that the worst possibility is $587, the inflation-adjusted price of gold in 1971, which was $35 just before the United States stopped repatriating dollars for gold:

-- And trader Rick Ackerman, writing at GoldSeek, wonders, "Something BIG Driving Gold?" He dishes deserved contempt on financial journalism and concludes, "If the $700 barrier is chop suey within a week, we can probably infer that something BIG is percolating beneath the gnarly surface of world events." You can find Ackerman's analysis here:

Who knows what alchemy the Fed and the Treasury will come up with tomorrow? It could be another mighty blow. We ARE used to getting bashed, paranoid even when we aren't being followed. But the government guys may have to get used to something too -- getting found out. Five years ago we were at $300. Tonight we're above $670. Put that on a scoreboard and it would say we're winning.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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