“A soaring gold price is a vote of ‘no confidence’ in the central bank and the dollar. This certainly was the case in 1979 and 1980. Today, gold prices reflect a growing restlessness with the increasing money supply, our budgetary and trade deficits, our unfunded liabilities, and the inability of Congress and the administration to rein in runaway spending,” wrote Congressman and Republican presidential candidate Ron Paul in a commentary published on lewrockwell.com titled What the Price of Gold Is Telling Us.

Ron Paul’s piece is enlightening and provides evidence that he is the only presidential candidate who understands the relationship of money, banking, deficit spending and the dire circumstances in which America finds itself. The time spent reading Paul’s piece is time well spent.

Ron Paul’s piece is a general and accurate condemnation of central banking and paper money. However, I suspect that gold topping $1,000 last week was not the result of the people’s sudden recognition of the evils of central banking and paper money but more specifically concerns about the stability of the nation’s financial structure. The Fed’s bailout of Bear Stearns, Wall Street fifth largest investment banking firm, became front page news last week.

The Arizona Republic, Arizona’s largest newspaper, made the Fed’s bailout of Bear Stearns its lead front page article Saturday with this headline: “Fed aids bank to quell panic.” Can you believe that, a major newspaper reporting a bank panic? Perhaps that’s why gold topped $1,000 and silver $20.

In a related article in The Republic’s Business Section titled “JPMorgan, Fed move to salvage key bank,” a professor from the Graduate School of Business at the University of Chicago was quoted as saying “My guess is by next week, there will be rumors of other large, familiar institutions” that might be in financial trouble. If so, gold’s run is not over at $1,000.

It’s one thing for the Fed to bail out a bank that most Americans never heard of, but something entirely different if rumors of insolvency spread about more widely known banks. If that happens, this move in gold and silver is not over. However, if people come to accept that the Fed can and will solve all financial problems, then we may see a break in the precious metals prices run up.

Still, there this to consider, which is discussed in The Arizona Republic article: Tuesday the Fed may lower its discount rate a half-point, which would signal to the rest of the world that the Fed is less concerned with the strength of the dollar than it is with the efficacy of the country’s financial system. According to the article, lowering interest rates would put downward pressure on the dollar. A falling dollar, would, of course, mean further increases in precious metals prices.

However, there is always the possibility that gold’s recent run-up and dollar’s decline were caused more by concerns about the U.S. banking system than by concerns about the dollar itself. If so, then $1,000 gold may have already discounted the Fed lowering its discount rate one half-point. And, if there is the perception that a banking crisis has been averted, precious metals prices’ climb—and the dollar’s decline—could take breaks. Only time will tell. Regardless, this should be an interesting week for the precious metals.

Years from now, when we look back at the dollar’s demise, will the Fed’s bailout of Bear Stearns may turn out to be one of the smaller problems faced by the Fed, or will it be pivotal? These are truly times to be invested in gold and silver.

On news that the Fed and other central banks are going to intervene in the sagging US mortgage market, stocks got off to a roaring start today. The Dow Industrials, the most watched stock index in the world, opened 200 points higher, for nearly a 2%. The NASDAQ, which opened 50 points higher, did see a 2% increase. To stock investors, the Fed was the cavalry riding to the rescue. But, is the optimism justified? Will the rescue be successful?

The Fed announced that it plans to lend up to $200 billion in exchange for mortgage-backed securities now held by the banking industry. The move falls short of calls for the Fed to make outright mortgage purchases of mortgage debt, but the move is certainly a huge step in that direction. If losses on the sinking mortgage debt continue to eat at the balance sheets of the major banks, how will the Fed not take the final step and buy the mortgage paper?

Although the Fed lowered its discount rate 1.25% in January as direct result of deteriorating debt markets, the problem has not gone away. Around the world, banks have suffered mortgage debt losses in the billions. Even after the Fed made the extraordinary January cuts, in England the government had to “nationalize” (take over) Northern Rock Bank in February after depositors lined up to withdraw their money. If there is anything that scares governments, it is people lined up outside banks.

This conflagration, which was ignited during Alan Greenspan’s tenure as Fed Head, threatens to burn down our financial house of cards, a banking system built on paper money. Greenspan ignited the fire by lowering its discount rate to 1%, then attempted to put it out by boosting interest rates as price inflation raised its ugly head. Now, Greenspan’s successor, Ben Bernanke, is devising schemes to keep the blaze under control.

Such is the problem that last month the Fed announced a “new tool” to alleviate pressures in the credit markets. That new tool was dubbed the Term Securities Lending Facility and is to make available $200 billion for the purpose of “lending Treasuries to primary dealers.” ($200 billion here, $200 billion there, pretty soon we’re talking some real money, to steal a phrase from the late Everett Dirksen.)

The “primary dealers” just happen to be the big banks, and this rescue program also involves other central banks. The problem truly is worldwide, and the Fed will not stop throwing paper dollars at the problem as long as dollars are accepted. When the dollar is finally repudiated, the game is up.

Meanwhile, a small segment of investors has begun rejecting paper dollars. That would be those investors who have turned to investing in gold. Many are making investments in silver as well. When people become concerned about the excessive printing of paper money, they always turn to gold and silver, and logically so, for gold and silver have proven to be the best forms of money ever used by mankind.

As for the Fed’s intervention affecting gold and silver, it has. Precious metals prices remain strong.