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The real breakaway will come when big investors convert their dollars to gold bullion.

April 25, 2011 – What will it take to get gold bullion really moving? We got a pretty good clue this week. Breaking the $1500 mark was nice, but the impressive thing was it did so on anemic trading. To truly break away “we need more persistent safe-haven buying or fresh inflation- hedge inflows” according to a VTB Capital note to clients reported in yesterday’s Wall Street Journal.

The S&P report was hardly a surprise and was long overdue, but it served as a wakeup call to global investors. Gloomy unemployment figures and a discouraging Philadelphia Fed Index on manufacturing underscored the ineffectiveness of QE2, and the dollar got pummeled.

“Further missteps [are] sure to send the dollar spiraling,” said Andrew Busch, global foreign- exchange strategist at BMO Capital Markets in Chicago in the Wall Street Journal. With the mop-up of hundreds of billions of dollars of excess equity looming, we can count on missteps. “It's going to be a little bit of groping around in the dark because we are in unprecedented territory,” Busch said. “Inflation is a tricky animal for the Fed.”

The economy seems to be a tricky animal for the Fed. While central banks around the world are raising rates to ward off Bernanke’s inflation, the Fed stands alone doing just the opposite. There is but one reason to persist as if everything were OK – the Fed knows it can’t possibly get us out of debt.

Officially the federal debt is stated to be 70% of GDP, no cause for concern. But “when you look at gross U.S. federal debts, they are now about $15 trillion,” said Brett Arends in MarketWatch – that’s more like 100% of the GDP, “right up in the danger zone.” Perhaps even that could be dealt with (just not with the current crew), but the non-federal portion of the total non-financial sector debt is roughly the same, and the fed can do nothing about it. Still it is there, and it cannot be separated out when computing the total national debt.

It is highly unlikely that the dollar will experience any long-term recovery on the global market. Sentiment against the greenback is growing by leaps and bounds and investors are realizing that its reputation as a safe haven is no longer warranted.

We can expect gold to break away when big investors start converting their dollars to gold bullion.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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