GOLD JUMPS ON WEAK DOLLAR

The dollar weakened 29 basis points to 79.97 this morning. In reaction, gold jumped $18 and silver jumped $.31. Platinum and palladium are also posting big gains. The Dow Jones Wire Service ran an article entitled "Gold Rises As An Alternative Currency Buy." Investors and central banks are trusting dollars and euros less and less. We are seeing a series of competitive currency devaluations much as I have forecast would occur over the past decade.

Chinese Premier Win Jiabao had sharp words for Washington on its currency and trade policy. Moreover, Moody's Investor Services has issued a caution about the credit ratings of the U.S., the UK, France and Germany. Gold is benefiting from what might be perceived as an escape from fiat currencies. The fact is that no fiat currencies have proven to be a good storehouse of wealth or value. All of them have experienced depreciation, which is translated into what we commonly refer to as inflation.

Turning back to the metals, another factor boosting the gold market today is that speculators bought back previously sold contracts to square up positions ahead of the Fed's interest rate announcement after the market closes. There's not likely to be much change in their policy statements or their actions. It is widely expected that they will continue to remain accommodative until there are very clear signs of economic recovery. They would rather see inflation picking up, rather than have the economy slip back into a more severe deflation. So the focus will be on the subtlety of the language of their statement. This is almost like reading the tea leaves. However gold is benefiting from expectations of a weaker dollar. The lower greenback often boosts dollar denominated gold by making the metal less expensive for purchasers using other currencies. That helps increase demand particularly for physical gold.

Gold has now pushed back above technical resistance at $1,120 an ounce. However, we need to see a more convincing move to be comfortable that gold is in fact breaking out of its $1,100 to $1,1,20 trading zone.

An interesting but somewhat surprising survey found that less than half of Americans consider themselves middle class. Only 14% said they consider themselves upper middle class; 39% said they were working class; and 45% said middle class. It is really interesting that even among people with incomes under $25,000 a year, 41% of them describe themselves as middle class. Similarly, 38% of those with household incomes over $100,000 consider themselves middle class.

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