Gold sold off a bit today; the Comex spot price was down $25 or so to $880, which is close to where it started the year. The talking heads are see this kind of action and come up with the headline that “Gold falls on speculation rally went too far.” Of course, I wonder how they came up with that conclusion. It’s not much over where it opened this year or the last. So what rally are they really talking about?
Sure, gold has come back a lot from when the central banks where elephant stomping it with paper gold claims back in October, but when you see headlines such as “Treasury needs to borrow $493B in current quarter” (which is two trillion dollars annualized) I’d expect to see gold going a lot higher than that. But I can’t say I’m surprised. In fact, I was hoping for it.
Since I’m actively trading a portion of my shares of Barrick Gold (ticker symbol ABX), the volatility helps me to make money. It just becomes basic at that point: buy low, sell high. If you buy and it dips lower, just hold it. You can’t keep gold down in an economy that is running trillion dollar deficits; it’ll come back up, just be patient. But in terms of exploding off the charts like we saw in the late 1970s through early 1980s, the central banks are doing their level best to keep that from happening. That means you have gold going ever higher, only to be pushed down in a flurry of Comex future contract selling. I mean hey, if you know the powers that be are doing all they can to play hell with your favorite commodity, you might as well try to profit from it- right?
I spent some time looking over the blogs I wrote back in October. When I read them I almost question who wrote them. I know it was me, but the day to day events I’m describing is almost too fantastic to be believed. The Dow Jones Industrial Average having one days swings in excess of 10%. Gold falling down to $745 only to make it all the way up to $920 soon thereafter, only to give most of it back up… only to rise again. The volatility of that period seems to have given way to the complacency of this one. People seem to have accepted the idea that deflation is upon us, but that the magnitude of the inflationary policies of the US Government and the Federal Reserve will ameliorate what’s going on. Furthermore, many people seem to also believe that the Federal Reserve will then be able to mop up all of that liquidity once inflation rears its ugly head and that we’ll somehow end up alright.
In that way, I suppose we see ourselves as a being in the eye of the hurricane. We know that we just went through a bad storm. It’s pretty clear that it’s still raging, but we feel safe in this weird pressure pocket between the forces of high pressure and low pressure. We know that eventually we’re going to have to endure the other end of the storm, complete with its ferocious eye-wall, but things are OK for now. For that matter, people believe, they will eventually be OK again. I suppose they are right in that way, but the long term eventuality they are thinking of is much father away than they’re thinking.
The truth is, we’re not talking about things go back to normal in a year or two. That’s just not going to happen. Instead, this crisis is only going to get worse, and we will have episodes of volatility just as we did last year. It’s not going to get better next year, or the year after. This crisis is going to drag on year after year after year until, eventually, the whole system crashes. It’s just like I told the church congregation on Saturday, we aren’t witnessing a recession. We are witnessing the death of our financial system. You see, we one had productive industries in this country, but we decided to replace them with a printing press. It defied common sense, but the Keynesians told us it would work out… but it’s not working out… and here we are.
So gold is down a bit today. Fine. I hope it goes a bit lower, because that’s where I have my next buy order in for Barrick Gold stock. Gold and gold mining stocks are experiencing constant upward pressure, but they keep getting knocked about by a financial system that won’t accept its own demise. The bankers sell gold short in an effort to keep its price down while those of us who know better, keep buying more. The strain between the two has resulted in larger premiums between the price for physical gold and the Comex spot price. Right now the premiums seem to be around $100 or so. Not as high as they were in October and November, but still high enough to show the strain between the demand for physical gold and the forces at work in the market for paper gold.
Then there are the bystanders just sitting around and hoping that everything works out OK, that they will get to keep their job, and that they might someday be able to pay off those credit cards. They don’t know what the future holds, but they hope. Unfortunately, when gold breaks lose and the system collapses, these are the people who are going to be absolutely devastated. In the song lyrics of Aimee Mann, “It’s not going to stop, ’til you wise up.”