Gold Going Down?

December 1, 2008 Global Economy, Market Updates, Physical Gold No Comments

What a difference 48 hours makes. Commodities got hammered this morning on news that China’s economy is contracting. More on that later, but first let’s take a snapshot of the markets at the time of this writing. The DOW is down 431 at 8,397, the NAS down 92 at 1,443 and gold is down $45.40 at $770.90. I guess the Thanksgiving rally is over in no uncertain terms.

Gold fell “on sharply lower oil prices and the dollar remaining firm after strong gains at the end of last week,”

said Mark O’Byrne, executive director at Gold and Silver Investments Ltd.

“Renewed uncertainty and weakness in stock markets could result in short term weakness in gold, but gold [should] continue to see a flight to safety in the medium and long term,” he said in a morning note.

It seems that every week we get some more bad news that sends the markets down and pushes the dollar up. I just cannot see the reason for the dollar’s rise. At some point, and I believe it will be sooner rather than later, people will begin to see what a sham the dollar has become. When the dollar begins it’s decline gold will step out of the dollar’s shadow and take it’s place in the sun. How soon? I don’t know and I wouldn’t even venture a guess. Things can change on a dime and I will go on record as stating that when it does happen, it will most likely be a very violent swing into the upside mode for gold.

China’s economy contracted by the largest amount ever in the month of November. This coupled with OPEC’S decision to keep oil output at the same level weighed heavily on the markets. Commodities got hammered and oil dropped while pushing the dollar up. It doesn’t sound right, but that is what is happening.

Mike Hoy covers it all in his piece this morning.

HOW CLOSE ARE WE TO COLLAPSING?

The real question investors need to ask themselves today deals with the timing of future events. Does the rubber band snap today or is there enough elasticity to put another artificial leg on the world’s economies?

The creation of trillions of Dollars, Yen, Euros and the like are practically guaranteeing the future demise of the current world’s financial system and most likely some of the governments behind them. If the creation of this Worth Less or Worthless paper makes its way into the economies of the world I believe the possibility exists that there is still elasticity left in the rubber band. The resulting consequences of this pumping will be hyperinflation. The ensuing fix could last 3-6 years before the rubber band snaps.

I could not have said it any better! Three to six more years of elasticity in the global financial system. Mike is spot on. This is the big picture. It is imperitive that we keep this in mind and use these dips in gold to pick up both physical gold and gold stocks while they are at fire sale prices.

Till next time, good luck and good trading!