Gold Headed South
Joe El Rady

I've never been a fan of gold. First, it's not a true commodity as it has no intrinsic value. You can't eat it. You can't put it in the tank of car. Its value stems from scarcity and "store of value" which, quite frankly, renders it no better than FIAT currency, except for the inability to manufacture more. Furthermore, all the gold ever mined would buy you five Apples, five Exxons and all of the farmland in the US (and then some... a trillion dollars more, I think)... that seems silly, I'd rather own Apple, Exxon, and all of the farmland in the US.

Nevertheless, the specter of approaching inflation, real or imagined, drove the price higher. Don't get me wrong, you can always make money by analyzing and tracking market psychology. Regardless, soaring commodity prices, rising real estate values, and increasing wage demands in emerging economies have caused inflation, which, in turn, has caused rising interest rates, making gold look less and less interesting to investors. (Margin requirements have also been tightened, making it harder for investors to take wildly speculative positions). All of these factors have forced a reversal in gold prices.

Adding to the dampened demand caused by the above mentioned factors, the rise in prices has elicited massive selling by consumers of gold jewelry and coins. This has fattened wholesalers' inventories.

Given all of the above, for now, gold will fall. In the longer term, given market psychology and impending cost push inflation, prices will almost certainly rise.