Where is Dillon, South Carolina?

Surely, they have put up a monument to their hometown boy, Ben Shalom Bernanke. Or maybe it is in nearby Augusta, Georgia, where he was born?

Bernanke is now an employee of policy think tank the Brookings Institute. Or a Distinguished Fellow in Residence in Economic Studies, to be precise.

He’ll no doubt have more time on his hands after his hectic days as “Rescuer-in-Chief” at the Fed. We should wander over to Dillon; perhaps we’ll run into him at a local strip club. We have a few questions we’d like to put to him.

But wait. Does he have bodyguards?

He probably doesn’t need them. No sparrow can fall anywhere in the world without setting off alarums at the NSA. Any plan to harm the former Fed chief would surely be foiled by the ever alert spooks.

Most empires were financed on the loot captured from their conquered opponents. But the US Empire depends not on generals, but on bankers. Bernanke – the “Hero of ’08” – kept the credit flowing at a crucial moment…

He kept the empire on schedule… and on target… for its rendezvous with disaster.

No Fever Like Gold Fever

Yesterday, the Dow registered a 74 point gain. Gold was up, too.

No one asked us. But we gave our reply anyway. “Are we in a new bull market in gold” was the question. Our answer: We don’t know.

But our reply suggested it didn’t make any difference. Gold has survived hundreds of paper currencies and hundreds of empires. Although the dollar may have gained ground last year, gold will survive it, too.

Colleague Braden Copeland thinks gold stocks may have entered an explosive bull market. (More on this below…) He notes that not only are prices rising, more important, so is trading volume.

“There’s no fever like gold fever,” says old-timer Richard Russell. And when gold fever takes hold… the results can be spectacular.”

But here at the Diary we are not speculators. We are observers. And what we observe is that gold is real money… ultimate money… the kind of money people turn to when the other kinds seem unreliable.

It is also what great empires tend to accumulate. Like trophy wives, gold goes to winners.

  • In the 16th century, Spain collected the world’s gold.
  • In the 17th century, the Netherlands was where the gold coins rolled.
  • In the 18th century, France was the world’s richest nation.
  • In the 19th century, Britain brought home the world’s gold.
  • And in the 20th century, the US was number one – with the largest gold hoard on the planet.

So, who are the biggest buyers of gold today? The Chinese. They are preparing to take their place on the world’s largest stage.

Empire of Debt

Recently, we were asked to update our book Empire of Debt, written with Addison Wiggin. Most observers, we pointed out, have concentrated their attention on the growing pile of US public debt, scheduled to reach 200% of GDP by 2020.

We preferred to focus on the empire itself. Debt has its lifecycle. So do empires. Both expand. Then both… without exception… contract.

An empire funded by debt is an especially ungainly, grotesque thing. It lurches from one disaster to another – going deeper and deeper into debt each time.

The Vietnam War pushed President Nixon – in what became known as the “Nixon Shock” – to end the dollar’s convertibility to gold. Recent wars in Iraq and Afghanistan have further weakened the empire’s finances… with costs approaching $5 trillion.

But it is not the debt that kills empires. Debt is just a razor conveniently left on the side of the tub.

In the meantime, Mr. Market can do whatever he pleases. And it may please him to push the price of gold stocks considerably higher.

We will see…



Editors note: We’ve put together a special for bundle for Diary readers that includes a FREE hardcover copy of Bill’s Empire of Debt and three timely gold recommendation. It’s a complete package that exposes gold’s history as real money and the fate of the US economy since it began its fiat money experiment. It also sets out specific actions you can take right now to profit from the explosive rally in the gold market. You can find full details of how to claim your FREE book and your special reports here.

Market Insight:

Big Money Moves Into Gold… with Conviction
From the desk of Braden Copeland, Senior Analyst, Bonner & Partners

In the fall of 2008, I spent a week in Austin, Texas, learning from one of the best traders I know.

His name is Kevin Green. He is one of the original developers of the Schwab CyberTrader platform. He traded on one of the original electronic trading floors in California in the early 1990s.

Kevin’s experience of how today’s electronic markets work is hugely valuable. Today, I want to share with you one of the secrets I learned from Kevin.

It has to do with something called “conviction”…

In the old days, market exchanges were big rooms in which discrete groups of people bought and sold securities in specific markets (company stocks, commodities, bonds, etc.). Each group was in specific area called a “trading pit.”

The system was called “open outcry” because guys were literally yelling “BUY!” and “SELL!” at each other. They backed up their yelling with crazy hand signals for the bid (buy) and ask (sell) prices.

On the typical day you didn’t hear much yelling. But when prices were about to make a big move in a certain market, the trading pits went wild.

The more yelling and hand waving, the more furious the price action. This action eventually led to high conviction in one direction – either up or down.

When there is a lot of money behind it, such conviction can lead to a price trend that’s far more powerful, and longer lasting, than normal.

So, how can having a feel for this be valuable if we’re nowhere close to any trading pits?

Below is a 10-year, weekly price/volume chart of the SPDR S&P 500 ETF Trust (NYSE:SPY) on top of the price/volume chart of the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) – a basket of junior gold-mining stocks.

Source: Bloomberg

The blue line tracks SPY. The orange line tracks GDXJ. (It only goes back to the end of 2009 because that’s when the GDXJ started trading.)

The vertical bars on the bottom of each price chart track trading volume. Higher bars are equivalent to louder “yelling” and more violent “hand waving” in the pits. They show intense trading is taking place.

When there are several of these bars close together, it’s a signal a powerful price move is forming. In other words, a lot of buying and selling is happening that is likely to lead to a big high-conviction price move.

With this in mind, take a look at the red circle in the black vertical bars, which show trading volume for SPY. Notice the huge volume of buying and selling. This intense trading volume coincided with the stock market crash of 2008-09.

This hyperactive buying and selling led to buying with strong conviction. SPY began a powerful run higher. And it’s still running…

Now take a look at the circled area on the green vertical bars, which show trading volume for GDJX. In recent weeks, we’ve seen an unusually big spike in trading volume

GDXJ has responded by marching higher. This shows a lot of money has come in that’s yelling “BUY!” while not a lot of money is wanting to “sell.”

Action like this makes it clear that investors have been buying junior gold miners with conviction. If you look at GDX, which tracks the senior gold mining sector, you’ll see the same sort of action… except it’s been happening for even longer.

If you get into gold mining stocks right now, you’ll find yourself in the company of high-conviction buyers. And, as my friend Kevin Green taught me, this is exactly where you want to be.