Gold and Energy Advisor: Real Wealth #299, 08/30/2011

Notes From The August Federal Reserve Meeting Prove Very Important

Dear Subscribers,

It is very clear from the notes from the August Federal Reserve meeting that the majority of its members including Fed Chairman Bernanke want to maintain a very accommodating monetary policy i.e. low interest rates and possibly more quantitative easing as well.

While this is extremely bullish for gold, events in Europe may bode even more bullish for the gold market.

The European Central Bank (ECB) has been leaning in the opposite direction of the U.S. Federal Reserve and has actually raised interest rates; fearful of inflation. In many respects the ECB is reacting to the economic dislocation we've seen emerging in Europe the way the Federal Reserve reacted to stock market meltdown and banking crisis of 1929 which made the great depression of of the 1930's inevitable.

With Europe's banks in so much trouble raising interest rates makes no sense what-so-ever. I'm convinced that now that Europe's economy is stagnated, poised to dip in recession and in growing risk of an all out banking crisis similar to what occurred here in the United States in 2008 and 2009 the ECB will be forced to join the Federal Reserve in the same accommodating monetary posture.

If the ECB does as I suggest it should mean gold will rise to $2400 very quickly from current levels. This would complete the first leg of this bull market in gold and mark the beginning of the next leg up.

If on the other hand, the European Central Bank takes no steps to loosen monetary policy, we could see a massive European Banking failure that would catapult gold to well over $3,000 an ounce.

Gold is now in the unique position of being in a win-win situation in my opinion. It is the reason that mainstream financial analysts like Jim Cramer are recommending holding 20% of your investment portfolio in gold.

Interbank lending is drying up in Europe. Banks are hoarding cash. The European economy is slowing to a stall and negative growth may actually be just over the horizon. In many ways this is exactly what happened just before Bear Stearns and Lehman blew up and almost took down the entire U.S. Economy.

This is a very important time period. The danger is growing.

While its true that Wall Street's indexes are rising, its also true that little has changes in the last few weeks. The economy is sluggish, unemployment remains uncomfortably high and while its true most U.S. Banks are not endangered its also true that there are far fewer banks in business thanks to the fall out from 2008 and 2009. Even more important consider the estimated $1.2 trillion dollars U.S. banks have borrowed from the Federal Reserve at one quarter of one percent and lent to European governments and banks for 4% to 9%.

A banking crisis in Europe would quickly undermine U.S. Banks all over again. Especially if European banks are nationalized - as I suspect we'll see in the heat of emerging meltdown.

The global nature of the world economy simply makes it impossible to ignore the very real risk of another global financial crisis approaching. Don't be fooled by rallies in the S&P and Dow Jones. These rallies and sharp declines are computer trading programs trying to work their magic.

Sincerely,
James DiGeorgia
Editor

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