December is traditionally a wonderful time for the stock market. It tends to rally strongly towards the end of the year, for some reason. So, it’s unprecedented that we start the month off with a 7.7% one-day drop in the Dow. This after a stronger than expected “Black Friday” sales season.
Don’t ask the media. It’s not of much help. “U.S. stocks slid the most since October, wiping out more than half of last week’s rally, on growing concern the global economic slump is deepening and consumers’ access to credit is shrinking.” Media headlines are excellent examples of how markets make opinions.
I can imagine the reporter being told, “The market’s going down. Quick! Come up with a headline as to why!” One of my favorites is why the COMEX price of gold declined as much as it did today. (That’d be 5.6% for those of you keeping track at home.) Why the gold price would’ve declined, I have some suspicions, but the one thing I do know is that it’s not, as Bloomberg said, due to reduced “commodity use.”
How would I know this?
Easy. Just take a look at the latest Gold Investment Digest release from the World Gold Council. The report states:
Gold demand, in tonnage terms, rebounded strongly in Q3 after several quarters of weakness. Identifiable demand totalled 1,133.4 tonnes, up 170.1 tonnes (18%) on the levels of a year earlier. In US$ value terms, this represented a 51% rise to $31.8 billion, an all-time record high and a 45% leap from the previous record set in Q2. The recovery in demand was triggered by a fall in the gold price, which coincided with sharply escalated levels of economic and financial uncertainty.
After briefly testing levels above US$950/oz early in the quarter, the gold price fell back, briefly touching levels under $750/oz in mid-September. Nevertheless, the average for the quarter, at $872/oz, was 28% higher than Q3 2007’s $680/oz.
The biggest contributor to the increase in total identifiable demand in Q3 was identifiable investment, up 137.5 tonnes (56%) relative to year-earlier levels. Jewellery demand rose 45.5 tonnes or 8%, while industrial and dental demand declined 11%.
So, Bloomberg is incorrect in saying that this crisis has caused any sort of reduced demand, because that’s just not the case. I’ll write more about the conspiracy against gold this week, but it appears that I did not get the COMEX short squeeze for Christmas I was hoping for.
In other news, Ben Bernanke has told us that the Fed might need to buy US Treasuries to aid the economy. That’s code for “print money.” You see, the Fed’s reserves are US Treasuries, and it’s recently swapped those for toxic debt to keep banks from failing.
So, where would they get the money to buy up US Treasuries?
Easy, they print it.
As told most clearly in G. Edward Griffin’s The Creature from Jekyll Island: A Second Look at the Federal Reserve, the Federal Reserve Committee creates the money it uses to purchase US Treasuries. So, the Fed is going to be doing a lot of printing. Not only that, they are going to be doing so in an effort to keep interest rates low.
Let’s see here … Printing lots of money, low interest rates …
Looks like it’s time to buy gold!