Gold is ready to take off as US Dollar is ready to go down due to interest rate differentials – Fed in difficult situation
Fred Day
Jul. 3, 2007

The US Dollar is vulnerable against all currencies. The rates are going higher in every country except United States. The US housing and sub prime debacle is making Fed consider rate cut while all other countries are focusing on rate hike. Even Bank of Japan will raise the rates next month.

In those circumstances, it is the ideal time to buy gold. Gold bullion and the futures market love stagflation. Stagnation lowers the rate and the resulting inflation pushes gold higher and the corresponding currency lower.

Gold can rise and test the highs of the last year. The gold market is vulnerable from just one issue. The emerging market economies can collapse any time. That will be bearish for gold since those market players will be hit with margin calls. They may decide to unload some of their gold positions to raise cash. So some precautions are necessary.

Once gold and oil make new highs, the Federal Reserve will be in a very tight position. The real estate and mortgage defaults will force Fed to lower the rates, in spite of looming high inflation. The Federal Reserve will lower rates grudgingly.

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