Will Fed Raise Interest Rates in September?

When you consider the self-deception of the Federal Reserve, it's difficult to project whether or not it will raise interest rates in September.Even though global economic conditions are deteriorating, there has been no strong signal one way or the other on what Yellen is thinking.

Almost all of Asia is crashing. Countries with strong exposure to commodities, like Canada, Brazil, Russia and Australia are struggling, and Europe is weak as always. That leaves the U.S on its own. I don't see how it can maintain any semblance of growth in the near future.

One temporary answer would be for the government to increase spending like it did the last quarter to reinforce the illusion of a strong recovery. That never works over time though, which is good for gold.

As a matter of fact, if China and many other Asian countries work to strengthen their currencies by selling Treasuries en masse, even while they engage in a currency war, that would almost certainly halt the idea of raising interest rates, and some believe it may even initiate another round of quantitative easing. We all know what that would do to gold prices.

We must watch China in the weeks ahead, as it has already sold off over $100 billion in Treasuries over the last couple of weeks, and it's sure to continue to do so. Almost certainly other Asian nations will do the same, which has the potential to change the direction the Fed wants to go.

What's happening in Asia is countries are fighting to remain competitive with exports, which of course why they're devaluing their currencies. At the same time they don't want them to fall so much it wreaks havoc on imports and brings about higher inflation domestically, so they're selling Treasuries to support their respective currencies.That means Treasury yields are going to remain level or go up, which the Federal Reserve doesn't want to face when it comes time to make an interest rate decision.

German Finance Minister: Federal Reserve Losing Credibility

German Finance Minister Wolfgang Schäuble said in an interview with Spiegel Online that Ben Bernanke and the Federal Reserve are losing credibility in relationship to fiscal policy.

Schäuble also significantly pointed out something most media don't understand or report on, and that is the Federal Reserve is manipulating their currency as much as China allegedly is when it debases the U.S. dollar by printing money, or uses quantitative easing to acquire Treasury debt (both are the same).

In other words, the U.S. is manipulating its currency, one of the reasons the Chinese have pegged their currency to it. That also forces Chinese regional competitors to acquire U.S. debt in order to try to strengthen the dollar so they compete against China in exports.

As far as the quantitative easing itself, Schäuble said the U.S. has more than enough liquidity at this time, and has no need to throw more money into the economy.

That's why he says he rejects the economic argument behind the reason for implementing another round of printing money.

He's referring to pushing the value of the U.S. dollar down so American exports can rise, which he doesn't believe is going to happen.

Schäuble concluded the reason Germany and others have success with exporting has nothing to do with manipulating currencies buy over the increased competitiveness of companies.

America has lived on "borrowed money for too long," said Schäuble, adding it has inflated its financial sector when it didn't need to and hasn't paid attention to small and medium-sized businesses.

Will Gold Prices Hit $850 Ever Again?

Lately I've been seeing quite a few analysts calling for a top in gold. I have to say these analysts don't really understand what's happening. If they did they would know that far from topping, gold is just getting started.

Just as a preface let me point out that the fundamental driver of this leg up in gold is the same driver that it's been for the entire 10 year bull market; currency debasement. Only now every country in the world is getting in on the race to the bottom. That being said it's the dollar's turn to collapse. The Euro had it's spell earlier in the year and now that cancer has infected the world's reserve currency...just like I said it would.

Let me show you a long term chart of the US dollar so you can get a clear picture of what is unfolding.

About every 3 to 3 1/2 years the dollar drops down into a major cycle low. I call it the 3 year cycle low but the average duration is 3 years and 3 months trough to trough. The dollar is now on its way down into that major bottom. After a brief bounce off the `08 all-time lows of 71 later this year I expect we will see the dollar roll over early next spring as the final plunge begins and the currency crisis reaches a climax.

Next let me show you a chart of the smaller daily cycle.

This smaller daily cycle tends to run about a month (18 to 25 days)trough to trough. We are now deep in the timing band for this cycle to bottom. Once it does (it may have on Thursday) we should see a weak rally, possibly back up to test the all important pivot at 80. That should pressure stocks and gold down into their respective cycle lows. I suspect many will take this as a sign that gold's run is over. It won't be.

Gold's drop into the now due cycle low shouldn't last more than 4-8 days. That's about how long we can expect the dollar rally to last as it will only be a dead cat bounce to relieve oversold conditions and ease sentiment extremes. Then the dollar will roll over into another decline that should bottom in early November and will likely test the 74 pivot. Again after another weak rally the dollar will crash down into a daily, intermediate and yearly cycle bottom that should test the `08 lows at 71. That is the point where the gold rally should take a more significant rest.

As I noted in the above chart the intermediate dollar, and gold cycle for that matter, runs on average 20 weeks. Last week marked the 9th week of the dollars intermediate cycle. It's way too early to look for a major bottom yet. If the cycle runs the "normal" 20 weeks then we won't get an intermediate bottom until late December. Considering the last yearly cycle low came in early December of `09 mid December should be a fairly accurate target for an intermediate bottom.

I can assure you that while the dollar crisis intensifies this winter gold will not be sitting still and it certainly won't be topping. As the dollar crashes down to test the `08 lows I expect we will see gold rocket to at least $1450 and $1550ish is probably a more realistic target.

But don't forget the larger three year cycle low isn't due to hit until next spring/summer. The dollar rally out of the yearly cycle low in December will also be a dead cat bounce, although it should last at least a month or two, but ultimately it too will fail and the true consequences of Bernanke's monetary policies will come home to roost as the dollar crashes down into the three year cycle bottom and the currency crisis reaches a climax next year.




That will drive the final leg up in this huge C-wave advance, possibly as high as $1700 -$1800.

So yes gold is due for a minor corrective move but it is a long way from the final topping process of the current C-wave that began in April of last year when the B-wave decline tested 850 which by the way was the top of the 1980 bull market.

Folks we are never going to see $850 gold again. And I seriously doubt we will ever see $1200 gold for the remainder of this bull market.

Gold Scents