Follow the Trend

Readers of these alerts know that I believe both fundamental analysis and technical analysis go hand-in-hand. Both approaches are valuable, but particularly so when used together.

The fundamental outlook for gold hasn't changed for years, and over this time, more and more people are starting to understand that today's monetary problems are going to worsen, which is bullish for gold. These problems include: inflation, the weak dollar, bank problems, US trade deficits, the federal government budget deficit, and more generally, too much debt.

Back in October 2003, Warren Buffett summed up the outlook for the dollar presciently in an article in Fortune magazine by describing the experience of other countries that lived beyond their means.

"At a point...the spree of the consumption-happy nation would be braked by currency-rate adjustments and by the unwillingness of creditor countries to accept an endless flow of IOUs from the big spenders. And that's the way it has indeed worked for the rest of the world, as we can see by the abrupt shutoffs of credit that many profligate nations have suffered in recent decades.

The U.S., however, enjoys special status...In other words, our national credit card allows us to charge truly breathtaking amounts. But that card's credit line is not limitless."

The piper is now being paid. The dollar has again fallen to record lows. Commodity prices are soaring as people flee national currencies and financial assets into the safety of tangible assets with no counterparty risk. And gold and silver are soaring.

The above charts will be familiar to the readers of these alerts. The trends are clear, and consistent with the monetary outlook from a fundamental point of view. Avoid the dollar and hold gold and silver instead.

Published by GoldMoney
Copyright © 2008. All rights reserved.
Edited by James Turk, alert@goldmoney.com

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