In a recent conference call with the research team of The Casey Report, we once again collectively tried to imagine what situation…what scheme…what government manipulation…might finally put a stake through the heart of gold.

Setting the stage, I think it’s safe to assume that in order for the gold bull to decisively reverse direction, the following general conditions would have to be precedent in the economy:

The financial crisis will have to have ended. Which is to say that…

• Unemployment would have to begin falling by significant numbers ? with 300,000 jobs or more being added month after month, instead of being lost.
• The housing markets will be stabilizing. Foreclosure rates would have to fall to more normal levels (and not because banks are forced to postpone the process for legal reasons, which is the case now), and sales would have to accelerate in the right direction.
• Government deficits would have to be sharply curtailed and heading lower.
• All quantitative easing will have ended.
• GDP will have to be on sound footing and rise based on sustainable, private-sector growth ? not based on the activities of government, which loom so large today in the calculation.
• Real interest rates ? the yields you earn over the actual rate of inflation (not the fabricated numbers ginned up by the government) ? will have to be solidly positive. Which, of course, is a big problem given the sheer magnitude of the outstanding debt. Rising rates will only beget more debt.
• The monetary base of the country will have to be contracting, not soaring as it has been in recent years.

But the following chart from The Casey Report a few months ago tells the story of runaway printing, and of why the Gold Price is so strong by comparison.

Inherent in the list just above are other conditions that will have to be precedent for gold’s run to end.

For example, politicians around the world will have to find the uncharacteristic courage to act in ways that are deeply unpopular with the very voters that brought them to office. Namely by slashing the scale and cost of government, with all the many cutbacks in subsidies and services that such a Great Downsizing must entail. And this rare new breed of politician would have to retain their jobs long enough to see through the reduction in government that must occur if stability is to be regained.

Of course, for the politicians to retain their jobs despite voting in deeply unpopular cuts to government spending will require that the voting public adopts a long forgotten stoicism and becomes willing to take their licks without running to the government for relief. Very much not the case with the students in London who last week started tearing things up over a proposed reduction in tuition subsidies.

GREAT NEWS! says Dan Denning in his Daily Reckoning Australia.

NASA researchers say there is at least a billion gallons of water on the moon. And that’s just in one crater! They published the findings in the journal Science.

So raise a glass to la bella luna! This means that if the accelerated depletion of natural resources by the limitless printing of fake money continues ? and there’s a pretty good chance it will ? we’ll have to find a new home with new resources to put to good use after this planet has been looted and depleted into a scorched and lifeless husk, like the moon.

The other good news is that the moon is pretty close, physically speaking. You just look right up in the sky and it’s there! It looks so close you could almost touch it. It was especially beautiful and silvery when we woke up at 3am last night wondering what the Gold Price would do today.

But speaking of gold brings us back to sliver. Scientists say there is some silver on the moon as well, but not enough to mine. That’s okay, though. There’s no need to hop on Virgin Galactic flight to the moon for your silver. You can buy it for US$23.19 per ounce. That’s 31% more than you would have paid if you bought a year ago. But it’s 5.8% less than sliver was selling for just last week.

You can see that silver is selling off a bit as the US Dollar rebounds. But we’ve written about this all week, so we won’t blather on.

The Dollar was probably oversold on a technical basis. Silver, gold, and other commodities are consolidating. This is good news if you haven’t bought any yet. They’re getting cheaper, for now. Gold, in fact, is on track to make its largest weekly decline since July. Gold Bullion is already at a three-week low and is set to make its first weekly decline in 12 weeks.

Once again, we greet these sorts of corrections with relief. It’s a sign that there are higher highs ahead. How do we know? The current US Dollar Silver Price, adjusted for inflation, is lower today than it was during the height of the American Civil War. The 1980 inflation-adjusted all-time high of $134.69 (in today’s money) was somewhat anomalous, since it was also the product of the Hunt brothers buying up a lot of silver futures.

Incidentally, it’s often repeated that the Hunt brothers tried to illegally corner the market and manipulate the price of silver higher. They are often portrayed as rich, evil, capitalist pig villains. Investopaedia’s telling of the tale is different. It suggests the Hunt brothers wanted a large position in silver to prepare for an inflationary melt-up in precious metals.

It also suggests that the only reason the Hunt brothers were busted was not because they had really done anything illegal, but because the government directly intervened against them.

First, the Feds prevented the number of long positions that could be taken in the futures markets. Now, instead of the market reflecting two highly-motivated, leveraged, and cashed-up buyers, the shorts stepped in and began to overwhelm the longs and Silver Prices fell.

Then the Federal Reserve actively discouraged what it called lending for "speculative activity". The Hunts had good credit on Wall Street with a large family fortune. But New York bankers knew the Feds were after the Hunts, and so the loans and leverage dried up, forcing the Hunts into a corner.

You can see that the government does like competition for its money. The Hunts correctly saw silver as a store of value and a viable competitor to the Federal Reserve Notes passing themselves off as American money. Faced with a direct threat to its counterfeiting monopoly by real money, the government simply changed the rules in mid-stream to destroy someone who challenged its privileged position.

Of course you might think we would be all in favour of a Federal Reserve that discourages speculative lending…or lending for speculation. And you’d be right! But in the Hunt’s case, the government was clearly looking after its own interests (retaining the credibility of Federal Reserve notes as money) and not on the legal functioning of a real market. If anything, it looks like the government intervened to distort a market that was functioning perfectly well.

These days, of course, the monetary authorities don’t have any problem encouraging speculative lending. That lending funds the asset bubbles which made banks rich ? the same banks that own the Fed. If you’re a drug dealer, you want people using the product. Anyone who tries to get clean, honest and sound is bad for business.

This has been going on for a long while, as the chart below shows. The active suppression of alternatives to Federal Reserve Notes started in the American Civil War and has since gone global, with all governments everywhere keen to replace good money (gold and silver) with debt-based money. This is an era of State-backed monetary fraud that your editor thinks may be ending in your investment lifetime, as the State itself reaches a fiscal crisis.

More on that after the chart…

It’s probably no coincidence that Silver Bullion is approaching about the same price it fetched when the American experiment in a strong Federal government with its own monopoly on money was just getting off the ground.

A strong central, federal government does not appear to be possible without a centralised monetary system that does not tolerate competition. As Murray Rothbard explains in A History of Money & Banking in the United States:
"The Civil War exerted an even more fateful impact on the American monetary and banking system than had the War of 1812. It set the United States, for the first time except for 1814-1817, on an irredeemable fiat currency that lasted for two decades and led to reckless inflation of prices. This "greenback" currency set a momentous precedent for the post-1933 United States, and even more particularly for the post-1971 experiment in fiat money.

"Perhaps an even more important consequence of the Civil War was the permanent change wrought in the American banking system. The federal government in effect outlawed the issue of state bank notes, and created a new, quasi-centralized, fractional reserve national banking system which paved the way for the return of outright central banking in the Federal Reserve System.

"The Civil War, in short, ended the separation of the federal government from banking, and brought the two institutions together in an increasingly closed and permanent symbiosis."
It’s important to note that the American monetary system Rothbard describes ? especially the post-1971 experiment in fiat money ? is the one the world now uses. Gold is held, inreasingly we might add, by central banks as a reserve. But for the most part, the world has been on the Dollar standard since 1971. And the Dollar is backed by exactly nothing other than the full faith and credit of the United States government.

It would be tempting to go into a much longer analysis of the permanent symbiotic relationship between government and banking. If you did, it might suggest that the reckless risk-taking of one entit ? enabled by a private authority subcontracted to manage the price of money ? is capable of causing permanent and irreversible damage to the credit quality of the other authority.

The US banks may be too big to fail. But their liabilities are so large that assuming them or backing them is going to take down the US government and its money. And when its money is the world’s chief reserve asset, the world is in trouble when US banks are in trouble.

So yes, the world is in trouble (although the moon is still beautiful). We won’t go into any more depth on the symbiotic relationship between centralized power and centralized money. But we will say, for a variety of reasons, that even though the symbiosis is permanent, the lifespan of the abominable organization this unification has produced is not. Political arrangements to govern and regulate the economy don’t last forever when they are based on unsound money.

We’re not exactly breaking any new ground with this analysis. But for investors, a newer issue is whether metals other than gold and silver are equal stores of value in a world moving away from financial assets and toward "hard assets". This is the case Dr. Alex Cowie made yesterday in the newly published monthly issue of Diggers and Drillers. In deference to his paying subcribers, we’re not going to say too much about the details of the cae he’s made or the stock he’s recommended. But Alex has essentially made the case that because of an extremely favorable supply/demand scenario, and because copper is enjoying a bid as "hard and tangible asset", copper prices are both headed higher AND more resilient to the big falls on slower economic growth we saw in 2008.

This isn’t a small claim. There was an enormous amount of leverage in commodity prices in 2008. When the credit crunch hit and the leveraged dried up, commodities prices crashed and so did commodities stocks. Is today any different?

Alex argues that it is. And at a fundamental level, he concludes that the growth of the emerging (emerged) markets is the bigger drive of base metals prices over the next twenty years than anything that happens in the American mortgage market. He may have a point.

But even if you’re bearish on global economic growth ? say because you believe China’s commodity demand is itself the product of a huge stonking property/credit bubble ? there is a case to made for base metals aslo being "financialised" into the world’s investment markets now the same way gold and sliver were a few years ago through exchange traded funds.

The other, slightly less cheerful argument, is that the breakdown of the post-1971 world money system leads to currency wars. And if currency wars ? which amount to contests over the real price of labour and commodities and who is to benefit from them most ? lead to real wars, real wars are probably bullish for copper. But don’t take our word for it. Check out the chart below.

Copper may not be money. And in the past thirty years, its price per Pound is most highly correlated with economic growth. That’s because it’ used in all sorts of construction activity, especially electricity, houses, and cars (everyone needs them all).

But copper made its 100-year high at $6.30 per pound during the Great War. That is the last time the world of integrated trade, travel, commerce and capital flows broke down utterly. Scarce resources became politically scarcer.

If the symbiotic partnership between central banking and big government is in rapid systemic decline, gold and silver will go to the moon (gold, presumably for the first time). Base metals like copper might not be far behind. And if things reach that point, you might want to own some lead and brass too.

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