With the wonders of modern communications brought to us by the internet and all the marvelous electronic toys now available, you too can publish your fantasy forecasts for the economies and markets of the world. Fantasy Forecasts is no longer just the privilege of Street gurus and former cab drivers now on the cable business shows. Demonstrate your individual skills by joining in the fun. But note, the rules are different for you from those on the Street. Your fantasy forecasts can cost you money. On the Street, you get promoted to managing partner.

The Fantasy Forecasts of recent times were powerful fantasies. They propelled the U.S. equity market higher and sent $Gold near a hundred dollars higher from the previous lows. One could almost see drool on the faces of forecasters as they talked of the wealth to be created in the markets by their visions. Let us take a moment to remember these great moments in delusion.

First, Greece was to begin leaving the Euro last week. Well, the election came and went, and Greece does not appear to be on the verge of leaving the Euro. While facing years of poverty brought on by the Keynesian mythology of prosperity through debt, Greek voters, perhaps far smarter than the economists that haunt the halls of academia, knew that a new drachma would be worthless on arrival.

Second, the Euro zone was definitely going to crumble this time. The "Euro was a mistake" school of thought, the modern day descendants of the flat earth society, have been forecasting the inevitable demise of the Euro for two decades. They continue to mumble nonsense about optimal currency areas(OCAs). The only OCA we have been able to identify is Zimbabwe, an economic wonder few would want to replicate.

Third, China is collapsing. This one is a perennial favorite. Clearly, China is not crashing, but rather likely to grow at 8% in real terms. If China would listen more to Western Keynesian economists, perhaps they would be more successful at crashing their economy.

Fourth, QE-3 was to really happen last week. No more waiting. Trillions of dollars of new bank reserve were going to flood the U.S. financial system causing all markets to rise dramatically. However, only sadness reigned last week as the Federal Reserve finished its latest monetary policy meeting. Rather than QE-3, the U.S. got Operation Twist -3.

Keynesian economists have never been bothered by failure. They just ignore it, and claim their mythology will work next time. Operation Twist is now facing strike three, having already failed twice. For those not familiar with baseball, strike three and the batter is out.

However, all that is acceptable at the Federal Reserve. Their record to date: No hits, no runs, too many errors to count. In baseball, they retire the manager with such a record. At the Federal Reserve they get their contract renewed.

With Fantasy Failure #4 came a rather difficult market for Gold and Silver last week. In the parlance of the Street, Gold and Silver had an adverse market reaction to the FOMC's announcement. Adverse reaction is a term used to describe a situation where the money lost belongs to other people, and therefore of minimal importance.

However, despite the disappointment last week we can look forward to a more positive environment for Gold and Silver later this year. The U.S. government deficit is not a fantasy. It is a reality created by the Keynesian mythology that spending borrowed money will make one rich. Given that in the past twelve months the U.S. deficit was $1,440 billion, we can safely say that nothing material has been done about the U.S. deficit problem.

Adding to worry about the deficit is the financial cliff the Obama regime has created for the U.S. economy that arrives on 1 January. With Obama's massive tax increase coming in January, a combination of eliminating the Bush tax cuts and the payroll tax holiday, consumers in the U.S. will experience a dramatic cut in their spendable income. The U.S. will begin Obama Recession #2 on the first day of the new year.

These factors suggest that holding Gold makes a lot more sense than U.S. government paper. With the U.S. seriously ill from the Greek debt syndrome, the dollar is likely to return to a bear market. Thus far, the Obama Regime has shown no interest in preventing the financial Armageddon facing the U.S. Gold is simply financial insurance against a near dysfunctional government.

Between now and the time the U.S. deficit problem reemerges is the short-term, in which we must also live. One of the issues in analyzing Gold and Silver is that we lack a measure of the "market".

The "market" is what provides the essential or central movement of the components of the market. Gold and Silver are components of a market. They are not individual markets to be only considered

in isolation. Further, the return on any individual investment is largely driven by the market, with idiosyncratic risk being less important when combined with other investments.

The chart above is our Gold/Silver Index. It is an index built with the geometric returns of Gold and Silver. Aside from the benefits of a measure of the "market", it helps free us from one of the great handicaps possessed by precious metals investors, including this researcher. We all have mental price anchors that prevent us from making the best decisions on Gold and Silver.

In that chart are two important observations. First, 220 has become support of some importance. The index has found support at that level now three times, though the latest was particularly weak. Second. and especially bothersome, is that no supporting structure exists under that 220 level. It is a market that has been walking out on a limb. That situation may be caused in part by the near collapse of physical demand for the metals and a dominance of paper players at hedge funds.

That chart suggests, when considered in conjunction with the failure of all four fantasy, that Gold and Silver should move lower in the short-term. Both metals should move lower through late Summer. At that time the issues with the U.S. government deficit, the uncertainty over the U.S. election, and the financial cliff coming for the U.S. economy in January should dominate. The longer term, secular bull market in Gold should then resume. However, that bottom will not be a "V".

GOLD THOUGHTS comes from Ned W. Schmidt,CFA as part of a mission to save investors from the regular financial crises created by Keynesianism, and the high priests of that misguided ideology. He is publisher of The Value View Gold Report, monthly, and Trading Thoughts. To receive these reports, go to: www.valueviewgoldreport.com