Articles & Blogs - Gold Commentary

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At the beginning of May, the usual chorus began that gold was about to have its annual spring sell-off. Those voices included not only the anti-gold cabal, but also a number of commentators inside the sector.

The prevailing “wisdom” was that since gold always sells off in the Spring that it must do so again. As is usually the case in the market, there was no actual analysis of why gold tends to sell-off in the spring – and if those conditions were present this year.

There are typically two reasons which work in unison to generate a pull-back in the price of gold – from May through the end of August. Obviously, one of the bases for a pull-back is that gold typically has a large rally in the Spring, the culmination of the strong season for gold: from October through March. This year, there was no significant rally from January through March.

The second fundamental factor which typically helps to create weakness in the gold market is a large decline in India gold imports – as their “wedding season” draws to a close, which is a cultural driver for gold purchases. This year, there have only been minimal imports from India (see “Is India now irrelevant to the gold market?”).

Thus, there were no fundamental factors acting to push the price of gold lower. Observing this fact, I refused to sell any of my own positions. Yes, there is general weakness in the market over the summer months, and (even now) a sell-off cannot be ruled out. However, my own analysis was that risk/reward clearly favored holding onto precious metals positions.

None of the fundamentals which have pushed gold above $1000 have changed, other than to become even stronger. The U.S. housing sector is still plummeting downward, with no “bottom” even possible for many years (see “The Distressing news about Distressed U.S. properties”).

The U.S. labour market continues to jettison jobs at the greatest rate in U.S. history (see “U.S. economy to lose 20 MILLION jobs this year”). Monthly U.S. jobs reports have gone from gross exaggerations to complete fiction. The weekly lay-off numbers cannot be contradicted. The U.S. economy is losing roughly 2 million jobs per month – not the absurd figure of 460,000 reported by the media-parrots today.

Meanwhile, the U.S. consumer sector, responsible for over ¾ of U.S. GDP, is terminally ill, and facing an entire generation of contraction and retrenchment (see “The Death of the U.S. Consumer Economy”). This total meltdown of the U.S. economy is creating a multitude of fiscal nightmares – at all levels of government – with revenues shrinking exponentially, while spending requirements soar.

This is leading to a series of “official” multi-trillion dollar deficits for the U.S. government - a follow-up to years of unofficial, multi-trillion dollar deficits (as demonstrated with the Treasury Department's once-a-year calculation of U.S. deficits, using GAAP accounting).

As the U.S. government attempts to dump trillions of dollars of U.S. Treasuries onto the market to fund these massive deficits, we are already seeing the inevitable consequences: soaring U.S. interest rates, combined with a new plunge in the U.S. dollar. The result of this scenario is nothing less than U.S. economic Armageddon (see “Rising U.S. interest rates signal hyperinflationary depression”).

The U.S. economy is destined for the worst of both worlds: an asset “depression” combined with soaring prices for necessary consumer goods like food, clothing and energy. However, for the rest of the world, the U.S.-driven fiscal insanity has caused governments to pump additional trillions of dollars of “liquidity” into global markets.