Gold closed at $1004/oz today. Looks like I was right again. And lookie here! Bear Stearns, the world's 7th largest investment bank, vanished. Bought up by JP Morgan Chase (on a Sunday, no less. Certainly can't let the common investor get a chance to get out) for what amounts to the cost of the building Bear Stearns was housed in. Paid for (naturally) by a loan from the Federal Reserve. Translation: paid for by everyone who holds $USD.

 

To put things into perspective, consider these facts:

 

-The minimum buy in for Bear Stearns stock was 5,000 shares

-Bear Stearns closed at $27/share on Friday

-The JP Morgan offer is $2/share

 

That's a $25 loss per share, or a minimum loss of $25 * 5000 = $125,000. And that's if you happened to be lucky enough to buy on Friday. I can think of one guy who lost over a billion!

 

To add insult to injury, it looks like Lehman Brothers, MF Global and Washington Mutual are next.

 

Well, it happened today, and it happened even faster than I would have predicted.

 

 

 

As I write this, gold is trading at about $998 in overseas markets and at this rate, will likely close above $1000/oz either Friday or Monday.

 

I know many of my readers find all of this financial stuff to be dull and dry, but it's an important piece of the puzzle that should not be ignored. This is big, bad and ugly. Everyone who holds US dollar positions are getting the hell out of Dodge while they can. How ugly is it? Well it's so bad that even Carlyle Capital is taking huge losses. You folks remember the Carlyle Group, right? Well if even the war profiteers are losing their shirts, it can't be good.

 

What's next?

 

My guess, is that the US treasury is soon going to have a firesale. They are going to dump the last of their gold reserves on the open market "as a profit-taking measure". Of course, anyone who understands how fiat economies work will see this for what it really is - a last-ditch effort to pay off some of their debts before the economy collapses.

 

But I digress. What this selloff will do is temporarily suppress gold prices. How far depends on exactly how much gold is still sitting in the vaults. (My guess is "far less than we think"). We might see prices temporarily fall as low as $650/oz, some time in Q2. However, (and I can't stress this enough) the correction will be temporary. The real players out there, the ones who already own 80% of the gold in the world, will step into the feeding frenzy created by the correction and scoop up every last ounce (paid for in $USD, of course). Naturally, seeing the Buffets and Forbeses of the world picking out the gold fillings from the festering corpse that is the US economy will bid the price way up. Billions of extra greenbacks being dumped into the global market will bid the price up even more. but neither of these things alone will be the final nail in the coffin. The final nail in the coffin will come when the common investor discovers what the "gold carry trade" is - all of that paper gold doesn't really exist, and the smart investors took physical posession long ago.

 

I foresee $2500/oz before Q3 2009, at which point it will stop being priced in $USD, because $USD will be completely worthless.