Britannia Radio

The Weekend Edition - September 19-20, 2009 A look at what's driving the gold market... The Mogambo Guru with a look at American's mad dash for jobs... The Chinese are getting in on the gold rush, says Bryon King... Bill Jenkins with a close look at the US banking system... Patrick Cox on what happens when computers meet cell biology... Bill Bonner on the likelihood of gold's day in the sun...and more! The Daily Reckoning's Highlight of the Week: China Gets in on the Trade of the Decade Baltimore, Maryland This week, the big story was once again coming from the gold market. Mid-week, the yellow metal hit $1020 - but the rally was not of the usual variety. Generally, investors flock to gold when the dollar is weak and inflationary fears run high. But as we all know, inflation is not a problem right now - despite the Fed's best efforts. No, this rally had another factor pushing it: our friends in the Far East. The Chinese have been quite vocal with their concern over the US dollar and have increased their official gold reserve holdings by 75% in the spring. Smart move. In the Weekend Edition's Highlight of the Week, Bill Bonner looks closely at where the recent rise in gold prices puts our "Trade of the Decade." Read on... Gold took off [Wednesday]...closing at $1020. Here at The Daily Reckoning, we're impressed. But we're not that impressed. Gold, of course, is half of our Trade of the Decade, which we announced almost 10 years ago. We're bullish on the metal...have been for a very long time. But recent comments in this space have made readers wonder what the Hell is going on...so we will spend a few minutes clarifying. First, we hope you bought gold many years ago. That would make it simpler. Then, we could say: hold! Gold is an antidote to paper. There is so much paper...and so much more apparently on the way...that the gold play seems like a winner. It's a bet that the money system that has been around since August '71 is going to fall apart. We still think that is a good bet. Our Trade of the Decade remains. Buy gold on dips; sell stocks on rallies. We've done well with this trade; we'll stick with it a bit longer. But what if you don't own gold? The yellow stuff is now over $1,000. In fact, it looks like $1,000 could be a new support level for the metal - with most of the support coming from the Chinese. China has relatively little gold in its central bank. It must see what we see - the weakness of the dollar and of the dollar-reserve monetary system. It must worry about the value of the $2 trillion or so it has in dollars. It must also wonder how it is going to run its economy if the dollar falls apart. American buyers were its consumers of first and last resort. To whom will China sell if its most important customers' money becomes worthless? Recent comments by a group of Chinese officials make it clear that they are thinking of these things...and that they have decided to add more gold to their reserves. In fact, all the central banks have become net buyers. No more selling off gold reserves. That is seen as a mug's game - which it is. Replacing gold with paper? C'mon, what were they thinking? So China is a buyer. Trouble is, it has to be a discreet buyer. It has too much money. It could cause the price to skyrocket overnight. Then, it would be paying too much. So, perhaps it does what we do - China buys on dips! For example, the order may have gone out: buy gold whenever the price goes below $1,000. We don't know what their buying strategy is...but the Chinese are probably going to be big buyers over the next few years. Should you buy along with the Chinese? Should you compete with the Chinese for each ounce of gold that comes on the market? Good question. Unfortunately, we don't have a good answer. So let's try a different question: Is gold going up or down? The answer to that is simpler: gold is going up...then down...then up again. It is going up because the feds - including the feds in China - are encouraging speculation. Then, it is going down when the next phase of the bear market reasserts itself and the speculators run for cover. Then, it is going back up...much farther and faster...when the Fed becomes desperate and finally throw caution - and dollars - to the wind. We're confident this last stage will arrive. Our hesitation is that it will take much longer than we expect. Gold may rise in a deflation...but it soars in a period of inflation. That period could be a long way off. [In the meantime, if you don't have some of the yellow metal in your portfolio already, you can take advantage of this special offer...and pay just one penny per ounce of gold. See how here.] The above is just an excerpt from Bill's standout essay from this week. You can read it in its entirety on The Daily Reckoning site - it's an essay you don't want to miss. ALSO THIS WEEK in The Daily Reckoning: Did an issue of The Daily Reckoning slip past you this week? It happens...but don't worry - we have all of this week's guest contributions for you, below... The Government-Based Economy by The Mogambo Guru Tampa Bay, Florida "A lot more people seeking the same number of jobs is pretty bad, especially when the number of people is still rising while the number of jobs is actually still falling!" The Floor Beneath the Gold Price by Byron W. King Pittsburgh, Pennsylvania "The implication from Mr. Cheng is that the Chinese will not overbuy gold, which may be why the yellow metal has hovered just below the $1,000 mark per ounce in recent weeks." An Appetite for Risk by Bill Jenkins Pylesville, Maryland "But the real problem is that the US banking system would come crashing down in a minute if this were known and understood by the general public. The banks know it. The Fed knows it. I suspect that there are some congress people who know it." When Computers Meet Cell Biology by Patrick Cox Marco Island, Florida "Until recently, cell biology has been something of a 'black box.' We could observe how cells functioned, but had little insight into the actual mechanisms. Now, though, scientists are learning how cells work on the molecular level." All That Glitters by Bill Bonner London, England "No monetary system lasts forever. This one - an impromptu experiment, at best; premeditated larceny at worst - has already lasted longer than most marriages." --------------------------------------------------------------- The DR headquarters has buzzing over the past few days - our technology expert, Patrick Cox, is sitting on some very big news. There is a major story that's coming together with shocking speed...and it's all going to come to a head next Wednesday, September 23. Of course, we can't give away too much information in these pages, but we can tell you one thing: this revolutionary advance that will be revealed less than a week from now has the power to change every life on the planet - and make a few "in the know" investors incredibly rich. Keep reading all about this story here. Well, that does it for us...enjoy the rest of your weekend, Kate Incontrera The Daily Reckoning The Daily Reckoning - Special Reports: History of Financial Disasters: Will you be Wiped Out? US Recession: By far the Weakest Recovery Introducing the Single Best Way to Make Sure You'll Never Run Out of Money...