The Big News Last Week Came From the Currency Markets… and Gold

"Ben talks, dollar falls," was the NY Post's take on it.

"Another day, another crisis for the dollar," was how the Financial Times described it.

The crisis in the dollar is simple enough. Ben Bernanke has made it plain that the Fed has its guns trained on deflation. While it fires away, it takes incoming from inflation behind it. The currency markets expect another rate cut in Washington... while in Brussels, the European Central Bank turns its hard face to inflation. What's a currency speculator to do? He trades his dollars for euros.

Yesterday, the euro hit another record high against the dollar, at over $1.52 cents.

But it's not just the euro that is rising. Our Latin American correspondent, Horacio Pozzo, says you only have to look at the dollar index to see that the buck is falling against ALL major currencies.

Your poor editor is out of luck. Whether he spends his money in pounds or euros or pesos... he gets less for it practically every day. His lonely exile not only separates him from the land of his birth... but the purchasing power he once enjoyed. When he was born, the dollar was not only a respectable currency... it was a desirable one. By 1948, it was already down to about half what it was worth at the turn of the century. But the worst was still ahead. Since then, it's lost nearly another 90% of its value.

Not only is the buck retreating against other currencies, take a look at the commodities market and you see it losing ground against practically everything else. The CRB index is up to 566 - a new record.

And gold? What is happening with our old, yellow friend? How fare's thee?

Not too badly, it turns out. Gold, too, is reacting... spectacularly. Yesterday, the price of an ounce of gold shot up more than $11... to bring the price to $973. Yes, you guessed it, a new record high. And this happened just days after an announcement that the IMF will sell some of its gold reserves in order to fund its operations.

Soon, the price of gold will hit the $1,000 mark. Then, you will see something unusual... something exciting... something remarkable. You will see the bull market in gold enter a third stage. At first, only the goldbugs bought the stuff. At $300 an ounce... gold was a no-brainer. Then, a few savvy investors and sovereign governments began accumulating gold... gradually bidding it up. But now, as it heads over $1,000 - the bull market in gold is going public. It's going to make headlines. People will start talking about it. Soon, ordinary people are going to start buying gold... and then speculating on gold.

Yes, dear reader... gold fever is about to hit... the third stage of a bull market. How high will this fever take the gold price? We don't know... $2,500 maybe. It could go into bubble territory too - perhaps up to $5,000. Anything could happen... and probably will. Make sure you're prepared...

But as we said yesterday, there's only one thing that bothers us with this prediction - it's too obvious.

What could go wrong? Could Ben Bernanke suddenly wake up as Paul Volcker? Or could deflation strike so hard it sucks inflation out of the system so fast the feds can't put it back? Could gold stagnate around $1,000... or lower... as the economy enters a deep, dark downturn... perhaps followed by a desperate push to get money into circulation, including dropping it from helicopters, as Bernanke once promised? Could the resulting hyperinflation render the dollar completely worthless?

We're thinking... we're thinking...

Bill Bonner
The Daily Reckoning Australia

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