The Waterfall Decline in the US Dollar Has Begun

With gold and silver taking off after the Fed statement, today King World News interviewed James Turk out of Spain. 

When asked about the action Turk stated, “I've just finished reading the Federal Reserve's announcement of its meeting concluded earlier today.  I've also scanned some of the excerpts from Bernanke's press conference and Eric, I am struck by the inconsistencies.  The precious metals markets must be seeing it the same way I am given the strength in gold and silver after the announcement's release.On the one hand, the Fed acknowledges higher commodity prices and rising inflation.  Yet they go on to say that inflation trends are "subdued" and inflation expectations are "stable" - and those are the exact words they use.  I mean, what can they possibly be looking at to reach those conclusions?
Then they say that they will keep interest rates low, but the reality is they need to be raising interest rates to fight the growing inflationary pressures, just like Volcker did when he was Fed chairman thirty years ago.

But here's the biggest inconsistency, the Fed plans to end its $600 billion quantitative easing program on schedule at the end of June.  But the federal government continues to run horrendous deficits, forcing it to borrow record amounts of money.  Consider this, since the Fed began QE2 last August, the federal government's debt has increased about $900 billion.  Over $500 billion of that debt has in effect been borrowed from the Fed, courtesy of the Fed's printing press.  Now I ask you, with the federal deficits running at or near record levels, who is going to buy all of the debt the federal government will be issuing after June 30th to fund its never-ending deficits?

Clearly, something has to give.  There are only two choices to stop the dollar from the waterfall decline you and I have been talking about and expecting.  Either the Fed raises interest rates, or politicians stop spending and it doesn't look like either one of those is about to happen.  In fact, looking at the Dollar Index and precious metals markets as we speak, the waterfall decline in the dollar has begun.  The Dollar Index has broken below all of its previous lows except for the last one at roughly 71 on the index.  When that gives way you could see incredible panic selling ensue.

The bottom line is the market is calling the Fed's bluff.  Investors don't believe the Fed will stop its purchases of US government debt on June 30th and for what it is worth, I don't either.”

When asked about gold Turk replied, “Gold is at a new record high, what's there to say?  I am a firm believer in the message of the market.  In other words, I don't look at cycles, momentum indicators or anything else, instead I look at prices, their trends and underlying fundamentals.  The only conclusion to make about gold is that it is heading to my $1800 target and looks like it will get there soon, maybe sooner than the June 30th date I had been anticipating.”

When asked about silver Turk remarked, “Silver got close to its all-time $50 record high when it reached $49.78 on Monday morning in Asia.  It is currently still below that price.  Therefore, silver has not yet confirmed the new high gold made today.  That may mean silver has to build a base here in the high $40s before plowing higher, and let gold lead for awhile.  That would not be surprising given that silver has been leading since last summer, as is clear from the drop in the gold/silver ratio.  We'll see how long it will take silver to hurdle above $50, but regardless, let's step back from the trees and look at the forest.

The dollar is in trouble and the Federal Reserve has its head buried in the sand.  Washington's politicians are spending money they don't have and the federal government's credit rating is being called into question, I could go on, but you get the point.  We're at an historic moment.  Years from now we will look back and point to 2011 as the moment in time when the flight out of the US dollar accelerated leading to its eventual collapse.  A simple and safe way KWN readers can prepare for this catastrophe is to own physical gold and physical silver.”

It is important to understand that your physical gold and silver holdings are insurance against a collapse of the US dollar if you live in the United States.  If you live outside of the US it is your insurance against a collapse of your country or regional currency.  This is an extremely important time in history because people are slowly losing faith in all fiat money globally.  For now simply continue on your monthly accumulation programs and do not try to time these markets.

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