In the post of March 11th, Big Day on Wall Street, I restated a Financial Times news story in gold terms but neglected to translate the Fed's bailout price of $200bn… When I went to make the correction, I was stunned!
On March 11th, 200 billion USD had a value of 6,413 tonnes of gold.
That's a LOT of gold! In fact, the total US Gold Reserve is 8,133 tonnes… so the announced bailout will cost about 80% of the total US gold reserve. In fact, the US Bullion Depository in Fort Knox only holds 4,570 tonnes of gold, with the rest in other vaults, primarily the Federal Reserve Bank of New York's underground vault in Manhattan.
Will Fort Knox be emptied to pay for this massive boondoggle? Of course not!
US Dollars are accounting entries with no intrinsic value whatsoever. The Fed will work all kinds of hocus-pocus – creating them out of thin air and using them to buy the bad loans and other non-performing assets of the banks that are in trouble, restoring their balance sheets to "robust health".
But you can be sure of one thing: in the long run, issuing 200 billion more dollars won't increase the purchasing power of the ones in your bank account!
In the short run, however, the USD could rise quite a bit – maybe 25% – and still be in a bear market. I suggest that you take advantage of any updrafts in the USD (bear market rallies like the one we saw late last week) to build your cash position by selling high-risk high-volatility dollars, and buying gold.