Is the U.S. Mint's production problem long-term or short-term?

What will be the effect on gold coin prices?

There has been a great deal of finger-pointing going on.

Who is to blame for this extraordinary crisis? Arguably, it is the most personal of the many crises visited upon us in my lifetime and probably the most far-reaching since, as of this morning, it had engulfed most of the world. Congress and the American people are looking for a "villain" or "villains" -- someone or some group that can be tagged with the blame for what has happened to the world economy. Wall Street's investment bankers rank high on that list. Driven by greed, they couldn't have cared less about the corporations which employed them and the customers who sustained them. Government, and central banks, come in a close second. Regulators failed to do their jobs and the central banks simply fed the credit bubble without regard to the consequences. Others tag individuals like Alan Greenspan, Ben Bernanke and George Bush. I could go on with the various candidates in the blame game but it diverts me from my point.

You get a sense that America's chickens have come home to roost. Instead of learning from our past mistakes though, as the idiom above is meant to suggest, the nation appears intent on compounding them. The Great American Bailout of 2008 is simply more of the same -- more debt, more easy money, more moral hazard, more taxpayer responsibility, and more government intervention. Quite literally, the government has once again applied a band aid, papered the problem over and delayed once more what will certainly be an even worse day of reckoning. Yes, the chickens have come home to roost, but for all the roosting all we have gotten is more chickens.

1. Wall Street Goes on the Dole

Post-bailout, there remains a sense of unease at the juncture of Wall Street and Main, a feeling that the other shoe is about to drop. "If money isn't loosened up," warned the president during negotiations on the bill, "this sucker could go down." One wonders how much our prospects have improved now that the money has been loosened up, i.e., whether or not "this sucker" might go down anyway.
 
Conclusion: Already Wall Street has cranked-up the media propaganda machine to pound home the idea that the now $810 billion bailout (up from the original $700 billion once the pork was added) might not be enough. CNBC reported late Friday, after the stock exchange had closed, that the 475 point swing from intraday top to bottom reflected a growing feeling that more capital would be needed to deal with the financial crisis. Saturday's Barron's magazine warned after the bailout measure that "further action is required to get credit markets working correctly again." It went on to advocate a coordinated global central bank effort to lower interest rates, a suspension of mark-to-market portfolio valuations and more central bank capital injections through the banks.

"The next Fourth Turning is due to begin shortly after the new millennium, midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation, and empire."

-- William Strauss and Neil Howe, The Fourth Turning, 1997

Gold continues to shine as one of the best performing asset classes through the first half of 2008, according to the USAGOLD Annual Survey of Investments. Only the CRB index, which of course includes a gold component, outperformed gold itself over the past year. Arguably it was the latest surge in oil prices that allowed the broad measure of commodities to supplant gold from the number one position over the last month of the second quarter.

As encouraging as the coveted bottom of the survey chart is to the gold owner, the top of the chart is extremely troubling for most households. The two biggest losers are the asset classes where the vast majority of the net worth of most individuals is wrapped up, equities (stocks, mutual funds, 401ks, etc) and the family home.

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One of the most intriguing patterns in the current bull market in gold has to do with the annual buying opportunity which crops up in the depths of the summer doldrums.

As depicted in the graph below, the end of a 20-yr bear market in gold was marked in 1999, and this new bull market was birthed in 2001.

When Jean-Claude Juncker, Luxembourg's premier and the chair of Europe's finance ministers, announced on April 23 that "financial markets and other actors [had not] correctly and entirely understood the message of the [recent] G7 meeting," his words went essentially unheeded. The Daily Telegraph's Ambrose Evans-Pritchard put that message in clear language. "[Juncker]", he said, "has given the clearest warning to date that the world authorities may take action to halt the collapse of the dollar and undercut commodity speculation by hedge funds."

Prior to Juncker's comments, French Finance Minister Christine Lagarde likened the recent G-7 stance to the 1985 Plaza Accord when the industrialized nations agreed to "coordinated intervention" to drive down the dollar. When asked whether the G7 statement might hint at a new coordinated intervention, Lagarde replied "the future will tell."

"Gentlemen, this is a football." -Coach Vince Lombardi at the start of Green Bay Packer football camp

Occasionally I like to take a close look at gold's fundamentals -- a gut check of sorts. It helps me get a deeper sense of what is driving the market. It also helps me reorganize my thinking around sound principles. Vince Lombardi, the legendary coach of the Green Bay Packers, always stressed knowing and understanding the fundamentals as the key to success on the football field. Likewise, learning the fundamentals is key to knowing and understanding gold. By doing so, you will become a more confident, better informed and successful gold owner.