Here is a prediction: the market’s response to the departure of Alan Greenspan is going to be quite different than the muted reaction we experienced when Bob Rubin resigned.

In the last issue of we looked at the possibility of Capital Controls being imposed in the U.S.A. in the event of a $ falling out of control.

More than ever, now, you must understand the global picture of gold and the monetary scene!

Last Thursday, the XAU closed above 91 to break the downtrend line that has acted as firm resistance on the gold stock index since November.

The International Monetary Fund issued a statement some time ago, which read as follows: – “Gold is an undervalued asset held by the I.M.F., and provides a fundamental strength to its balance sheet.”

All great Bull Markets spend the majority of their time in corrective modes. After each period of upward progress exhausts itself, a far longer time ensues before the next up-wave emerges. This is when the markets correct the excesses created by the excited late-comers, whose frantic bidding drove prices beyond sustainable levels.

The dollar behaved as expected last week, reacting back from an extremely overbought condition, only to turn higher again towards the end of the week, and gold’s action was the inverse of the dollar action. The dollar does look set to run higher towards the 85 area shortly, which is expected to result in gold continuing to test key support in the $410 – $420 area.

When you think of a bubble in the 1920s, what comes to your mind? We are willing to bet that it isn´t the Florida real estate craze of 1925.

Despite the horrific fundamentals, the market has continued higher, yet, as I already dramatically demonstrated a couple of weeks ago by means of a Dow chart in Euros, this rally is nothing more than a “damp squib” in real money terms.

Neither the US Administration or the Federal Reserve has shown any wish to halt the dollar’s collapse, instead citing its importance in reducing the US twin deficits.