In any discussion of the future of Gold, or of the price of Gold, the first thing that must be realized is that Gold is a political metal. In the true meaning of the word, its price is "governed".

This is so for the very simple reason that Gold in its historical role as a currency is fundamentally incompatible with the modern worldwide financial system.

Up until August 15, 1971, there has never in history been an era when no paper currency was linked to Gold. The history of money is replete with instances of coin clipping, printing, debt defaults, and the other attendant ills of currency debasement. In all other eras of history, people could always escape to other currencies, whose Gold backing remained intact. But since 1971, there is no escape because no paper currency has any link to Gold.

The global paper currency system is very young. It depends for its continued functioning on the belief that the debt upon which it is based will, someday, be repaid. The one thing, above all others, that could shake that faith, and therefore the foundations of the modern financial system itself, is a rise (especially a sharp rise) in the U.S. Dollar price of Gold.

On June 19-20, the FOMC met in the US. In the press release issued on June 20, it was revealed that Mr Bernanke and his merry band had decided to extend their "Operation Twist" (selling short-term Treasuries and using the proceeds to buy their longer-term counterparts) until the end of 2012. Mr Bernanke and the Fed are being as recalcitrant as their colleagues across the Atlantic. They are refusing to (once again) detonate the financial nuclear option and embark on another round of "Quantitative Easing". They are trying to muddle through without going even deeper into their bag of "unconventional measures". The "markets" are being starved of fuel, and they don't like it.

Look at the present picture from the point of view of those who refuse to look past the end of their noses. The US was in official recession for all of 2008 and the first half of 2009. The recession was ended by a huge surge of debt creation which was led by the US Central Bank but which quickly spread globally. The justification for this debt orgy has always been that if it hadn't been done, the global system would have collapsed in smoky ruins.
                                             .................... The Privateer