Daily Commentary

Bernanke Jawbones a Firmer Dollar

Fed Chairman Bernanke made a speech this morning in which he "jawboned" in favor of a firmer dollar.  He said repeatedly the Fed is vigilant about curtailing inflationary expectations and that the Fed will be vigilant to be sure that inflation expectations do not rise out of control, and further that the dollar will stabilize and not decline further.  In short, his statement was a confirmation that the Fed is concerned about the dollar collapsing.  He made every effort in which to reassure the markets that the banking system is not likely to fail and that the dollar will not collapse leading to "an unwelcome" rise in inflation.  He also suggested the Fed is unlikely to lower interest rates further, although his remarks suggested that so long as inflation expectations remain contained, then the Fed probably won't contemplate higher rates until there is more stabilization in home prices.  Unfortunately, those who are familiar with the problems in the banking and housing system view his statements and commentary as simply trying to "jawbone" the dollar. 

Yesterday, we saw that a major British lender went to the market to try to raise capital to offset losses in the housing sector.  They were unable to raise money in the capital markets.  Now we hear that Lehman Brothers and other investment banking firms are likewise going to go to market, diluting their shareholders and attempting to raise further cash to meet their losses.  There is some question as to whether that will be successful.  When Citibank raised capital they diluted the shareholders equity by 20%.  Moreover, none of these banks can see daylight in terms of resolving their problems.  The economy is now moving into that period of time during which mortgage defaults and foreclosures are likely to increase substantially.  This is actually confirmed by a report from the New York Fed.  Therefore, one has to question whether the Fed can indeed assume a policy position that is anything but extremely accommodative. 

The dollar strengthened substantially on Bernanke's remarks, rising 35 basis points to 73.28.  Oil fell on his comments, down $1.64 at $126.12 a barrel and gold dropped $14.50, with silver down $.28.  It is always wise to follow what the Fed does rather than what they say.  Therefore, I believe the Fed has simply created a tremendous buying opportunity in the precious metal sector.  As we saw over the past few days, gold was in the process of moving higher in an attempt to break out above $900 an ounce.  After the Fed comments, gold pulled back from it's high of $900.60 in the August contract to $883.10.  It perhaps has vulnerability to support at $873.  However, it is likely that bargain buying will emerge in this market fairly quickly.  There has been excellent demand for physical gold from Asia and from the Middle East.  Their demand could very well provide a floor to this market. 

Those who utilize Goldline's Price Guarantee Program have no concern about this correction.  In fact, it simply provides those who use that program with more gold or silver for their investment dollars. That is why I have so consistently encouraged people to utilize that feature for the protection that it does provide over the short term. 

One thing is clear, if Bernanke's implication that the rate cutting cycle is over, is true, it will cause much worse problems in the banking and financial sector.  Housing cannot recover nor can the banks re-liquify their balance sheets in an environment of rising interest rates.  The statements of Bernanke and the actions of his Fed suggest to me a replay of the 1970's during which Fed Chairman Arthur Burns did similar things.  He constantly talked about strengthening the dollar and stabilizing the economy and fighting inflation, but did the exact opposite.  The ultimate result was the dollar collapsed and gold skyrocketed during his tenure.  I also suspect that Bernanke's statements were coordinated with Treasury Secretary Paulson's pleading to the Arab OPEC states to not drop their peg to the dollar.  Perhaps there was a promise that the Fed would jawbone the dollar higher if they held on to the peg.  These events to not occur in a vacuum.   The dollar is in very serious trouble, as are the banks and the financial system in general.  In this environment, I believe that everyone needs to own some gold and silver.

Investors should contact Goldline and ask them to explain the features, benefits and cost structure of the various gold and silver investments that are available to you.  Select those that best meet your own personal and individual investing needs and objectives.  Investors looking for low transaction costs may wish to consider bullion assets such as American Eagles, Krugerrands, Canadian Maple Leafs, Silver Bags or Silver Bars.  However, the Price Guarantee Program is not available with these assets. 

If you would like to take advantage of the Price Guarantee Program, which provides you with a two-week window of opportunity in which to re-price your order in the event of a correction, you must select assets with some collectible value such as Swiss 20 Francs, Double Eagles and Silver Dollars.  When you acquire 29 Swiss 20 Francs, you will receive the 30^th coin for free.  Investors may wish to consider several tubes of these coins to obtain several free Swiss 20 Franc gold coins.  Call Goldline at 1-800-827-4653 for further information.

To receive the free information package including the special booklet from the FDIC that helps you to understand whether your bank accounts are safe and enables you to be sure that your bank has the proper insurance to protect your deposits, call Goldline.  We also provide several other helpful articles.  There are also a number of other independent third party source articles that you will find extremely helpful and informative.  You will also receive the company brochure and a Coin Facts Risk Disclosure Booklet, which you should read carefully before you make an investment. 

Goldline will also send you a free CD of the special interview with analyst Frank Barbera if you ask for it.  This is a remarkable interview and I think everyone would benefit from listening to it.  Call Goldline now to receive your free information package at 1-800-827-4653.

^{You should carefully read the client Account Agreement and the Risk Disclosure information. These explain important things you need to know before you invest in precious metals, such as: past performance does not guarantee future results. Transaction costs are generally 5% to 10% on bullion and 30% to 35% on coins. This is also referred to as the spread, or the difference between the buy price and the sell price. The market must go up enough to overcome this spread before an actual profit is achieved. All markets go up and down. Coins are a long-term, three- to five-year, preferably five- to ten-year investment, suitable for 5% to 10% of the average portfolio. Please see Goldline's Risk and Disclosure Statement for further details.}

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