Steady holding pattern,.. for now

Gold nor silver have made any significant moves over the past half year, keeping a steady holding pattern. The U.S. economy seems to be turning around, while Europe has stayed in the doldrums. Neither market seems to diverge on it’s current direction.

While U.S. prospects look promising, the fundamental underlying issue of national debt is continuing to erode the U.S. turnaround’s credibility. There is no clearly stated path to resolve the debt issue, but the options are few.

Raising taxes will take any steam out of the current recovery, even liberal tax measures will need to take a conservative approach. But regardless how aggressive tax increases are, the bite out of the deficit will be marginal.

The only other solution is inflation. Creating a high inflation environment would make it possible to reduce the debt, by paying it off with inflated tax dollars. Thus the systematic devaluation of the U.S. dollar is only a question of time.

So gold should see a rally against the dollar, though in fact it will remain as one of the few havens against inflation and a deflating dollar.