“Why is gold getting hammered? “the caller asked. I could hear dejection in his voice.
“Gold’s not getting hammered,” I said. “The euro’s getting hammered, and right now, just as I’ve warned on my Weekly Metals Wrap interviews with Eric King at King World News, for a while to come gold will trade against the dollar.
“When the dollar’s up, gold is down, and vice versa. In time, gold will rise against all major fiat currency debacles, but right now there are still huge numbers of money managers who see the dollar as a refuge from the euro. For gold to rise when there are eurozone problems, more money managers will have to come to recognize gold as the real refuge, not another fiat currency.”
As to when this will happen, no one knows, but it is inevitable.
Actually, such action in gold is – to me – proof that gold is still in the early stages of this bull market. Yes, gold is now in the 11th year of this run, but it’s still the early stages.
In the first leg of a bull market, prices rise will little to no attention. That was 2001 to somewhere between 2009 and now. In the second leg, prices rise with much publicity and attention, but average investors remain on the sidelines, as does Wall Street. In the final and third leg, everyone piles in.
Before this bull market can end, Wall Street has to become a gold bull, but primarily recommending gold shares because that’s where they make their commissions and because they don’t sell gold coins (at least not right now). Finally, the man on the street buys, as in the 2000 dot.com boom and the housing boom.
As for today’s action, bad news out of Europe where unemployment surged to 10.9%. This was quickly compared to the official US unemployment rate of 8.2%, which is not only lower than the eurozone rate but is in decline as the unemployed who quit looking for jobs are no longer counted, therefore posting declining official unemployment numbers in the US.
On Europe’s bad unemployment news, European bank shares took hits, and money managers switched from euros to dollars. And, judging by gold’s decline, too few euros went into gold to offset the knee-jerk move of moving from euros to dollars. This, of course, set the speculators to selling gold as the dollar climbed.
Unfortunately, gold investors are going to have to learn to deal with this, and they have to remember that the real reason for buying gold (and silver) is as a hedge against dollar debasement. Fortunately for the dollar, it remains the world’s primary reserve currency. The euro is secondary. Worse for the euro, there lies in the back of the minds of many people the fear that the euro may not survive the eurozone’s problems. In which case, the dollar looks really good, until you start looking at the financial state of affairs for the US.
For a look at the sad state of financial affairs in the United States—at only the federal level— watch United States Budget Dilemma, a five minute video.
