The popular misconception is that the price of gold is higher only due to a falling dollar. The truth couldn’t be further from that. Gold reached record highs in euros, Australian dollars, Japanese yen and other major currencies in the first half of 2009. Over the recent months, gold has made new highs in dollar terms as well. At the same time, the dollar has been falling, but with decreasing speed. The price of gold has been rocketing higher in all fiat currencies over the last few weeks and now, gold has reached a new highs in euro terms as well. This simple chart should dismiss the words of the naysayers, the paperbugs who still favor banks and who are hellbent on seeing the price of gold collapse.

The truth of the matter is that gold is going up in all fiat currencies because gold is a safe haven play. In times like these people flock to safety. As the price of gold goes up, speculation increases too, but we are still a long way from a mania phase. Gold has not reached new highs if you figure in CPI, the faulty government statistical figure. To make up for inflation, gold should reach $2358. If you prefer the unofficial CPI published by shadowstats.com, then gold should reach $7150 to reach new highs. Any way you look at it, gold has still not reached a mania phase. The public is still selling the remains of their scrap gold. When gold reaches mania phase as tech stocks did at the turn of the century, people will be piling into gold, not selling it. Magazine covers should provide an early warning signal of a top, but this should be used in conjunction with other, more reliable indicators such as the Dow to gold ratio and short term interest rates.

This is from Jim Willie’s recent article:

The Canadian Mint has released information that admits to 17.5 thousand troy ounces of gold and other precious metals missing, whose estimated value is $15.3 million. No credible explanation has been offered for the missing inventory. These are not lamps, boxes of paper, crates of machine tools, floor tile, stereo sets, or power tools sitting in inventory. These are gold bars. Or were they tungsten bars? Permit the Jackass to surmise that the Canadian Mint were interrupted in their coin production process. They poured what they thought were gold bars into a cauldron, but since tungsten melts at 8000 degrees, and gold melts at 2200 degrees, the cauldron soup was lumpy with tungsten cheese. Instead of admitting they held and discovered 17.5 thousand ounces of tungsten, sure to rile the Wall Street boys, sure to turn the gold market upside down more than already, sure to invite severe scrutiny to many bankers who already face criticism (but not prosecution) over mortgage bond fraud, THEY JUST SAY IT IS MISSING !!!

Of course, Jim Willie is just speculating here. The Canadian Mint story has been dubious from the beginning and this is the best, or at least the most interesting explanation I’ve seen so far. The full article can be read here.

Really? REALLY??!! Stealing from the American public is now called God’s work? These guys can’t be serious. But that was not all. This outrageous claim was later followed by another statement:

“We participated in things that were clearly wrong and have reason to regret,” Blankfein, 55, said at a conference in New York hosted by the Directorship magazine. “We apologize.”(source)

What exactly did you have in mind when you said that you “participated in things that were clearly wrong”? Would you care to specify? What about stealing billions of dollars from the American public via your accomplices at the Treasury Department and the New York Fed? This is clearly not a ‘mistake’, this is fraud and should be prosecuted as such. And where is the SEC and the DOJ? Why aren’t they doing anything about it? Recent media reports have been pretty clear about the fraud involved in the bailout of AIG, of which Goldman was a beneficiary to the tune of $12.9 billion (sic!). Last but not least, this ‘apology’ was not accompanied by a promise not to repeat these ‘mistakes’ again.

This statement was accompanied by a promise to give small businesses $500 million dollars in loans to help them recover from the recession. Of course, they left out the part where it says that it’s actually government money that they’re ever so willingly loaning out:

“Goldman Sachs repaid the $10 billion it was given last year under the taxpayer-funded Troubled Asset Relief Program, plus dividends. The firm continues to benefit from federal guarantees on about $21 billion of long-term debt.“(source)

This is from Bill Gross’s Investment Outlook for the month of December, published this morning. I recommend reading the entire article, but here is the punchline:

“…before moving on, let me state the obvious, but often forgotten bold-face fact: The Fed is trying to reflate the U.S. economy. The process of reflation involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks. Once your cash has recapitalized and revitalized corporate America and homeowners, well, then the Fed will start to be concerned about inflation – not until.”

Mr. Gross publishes his Investment Outlook every month and it is always a worthwhile read. Sometimes his letters seem sort of like stating the obvious, but that is actually not a bad thing. Mr. Gross works for PIMCO, which is said to be the biggest bond fund in the world. The people at PIMCO are as professional as you can get – people all around the world would pay thousands, and indeed they do, to get some idea of what people like Bill Gross, Warren Buffet and Marc Faber think about the markets and the economy*. They’ve been in this business far longer than most investors and as a consequence, they know more and it pays to listen to what they’ve got to say.

You can sign up for e-mail updates. In addition, there are other contributors worth reading at PIMCO – check them out!

*These three names are just an example, they are by no means the only geniuses out there.