Getting Ready for $700

There were several key milestones reached this past week. The CRB Continuing Commodity Index made a new record high, and crude oil continued its climb toward $80. The Dow Jones Industrials climbed above 14,000 for the first time ever. Both the CRB and the DJIA have made five record high closes so far this month.

Continuing with last week's noteworthy milestones, the dollar fell to a record low against the euro and multi-decade low against the British pound. The Dollar Index fell to its lowest level since September 1992, which is the month George Soros was able to 'break' the Bank of England when the European Exchange Rate Mechanism fell apart.

Taken together the above milestones indicate that the flight from the US dollar continues. People are increasingly opting for tangible assets (commodities) or near-tangible assets (equities of commodity producing companies) instead of dollars. For example, even though the DJIA fell 149 points on Friday, mining stocks showed good relative strength. The XAU Gold Mining Index rose 0.2%, while recent stand-out Freeport McMoran gained 1.4% for the day, all but ignoring the overall market's big decline. The XOI Oil Index rose 0.3% on Friday.

The above trends can be expected to continue given the ongoing destruction of the dollar's purchasing power that results from its mismanagement. We can see in the following chart that the Dollar Index looks ready to fall off the edge of a cliff.

It is noteworthy that gold and silver are absent from the multi-decade milestones listed above. Governments still seem intent in trying to cap the gold price, which is the reason for its underperformance. For example, we learned this past week that the Swiss National Bank sold 13.9 tonnes of gold in June. Despite these price capping efforts, both gold and silver had good gains last week, climbing 2.7% and 2.3% respectively. Both of their charts are positive.

Eventually the market will overpower government efforts to cap gold's price. In the meantime, continue to accumulate both gold and silver as they remain relatively undervalued. As I noted in the last alert: "The precious metals are cheap, and their prices have a lot of catching up to do."

Gold and silver have yet to achieve the multi-decade highs already seen by many commodities, but they will inevitably climb higher as the dollar makes new multi-decade lows. So get ready for $700 gold.

Published by GoldMoney
Copyright © 2007. All rights reserved.
Edited by James Turk, alert@goldmoney.com

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