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I forget what you did last summer

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I forget what you did last summer

Post by Dirtbikepilot on Thu May 17, 2012 10:20 am

The price of gold keeps falling, and it keeps falling despite the
imminent failure of Greece's Euro membership, the looming collapse of
Europe's banking system, and the fast-looming debt-ceiling repeat and
fiscal cliff in the US.

Hey-ho. Some €700m per day is being
pulled from Greek banks. Global stock markets have fallen over 7%
already this month, the broad commodity markets have fallen for 10 out
of 11 days, and crude oil is trading at a 6-month low, down 15% from
February.

Yet the distinct attributes of gold - un-inflatable,
economically useless incorruptible gold, with its zero credit risk and
5,000 years of monetary use - count for nothing. In Dollar and Sterling
terms, it's now back where it started last summer's big move.

That's
precisely what happened in late 2008, when the collapse of Lehman Bros.
- and the missed opportunity to let every other over-leveraged
investment fraud go bust as well - drove equities, commodities and gold
sharply lower.

By mid-October 2008, gold had re-traced the entire
surge that started with Bear Stearns' hedge-fund failures of mid-2007,
running to the peak above $1000 per ounce when Bear Stearns itself
failed into the loving embrace of J.P.Morgan the following March.

Here
again in 2011-2012, the crisis proved good for gold at first, but the
whole move has been unwound as global credit deflation sucked the air
out of gold futures and options, and wipe-out losses in other assets
forced even true believers to quit their positions.

Gold prices
have the potential to recover, reckons a UBS analyst on Bloomberg TV. No
doubt he's right. But how strong is gold's immediate potential given
the overwhelming bullishness of every other tomfool able to voice his
opinion in public.

"Last time we talked, last September or
October, you asked what I thought, and I was bullish at $1800," said one
MBA with the certainty of a 12-year old to Business Insider a week ago.

"Now it's $1660, and I'm still bullish. I'm more bullish than ever."

Good grief. Just think how bullish he must be now gold has sunk another $120.

Gold
has risen for 11 years straight, gaining through boom and bust and boom
and bust again, beating all other tradable assets hands down and even
being recognized by 1-in-4 Americans as the best place to keep your
money.

The best place up until now, that is. Survey monkeys
really don't know the best place from here. No one does. Hence the fun
we're all having meantime.

Longer-term, of course, gold's low of
Oct. 2008 proved a stand-out buying opportunity. Difference was that
physical gold demand - at the lows of the 33% price drop top-to-bottom
in 2008 - was massive. Lines formed outside coin shops, gold ETF
holdings surged, BullionVault users couldn't pile the stuff into Swiss
storage fast enough at just $4 per month, and financial journalists
worldwide realized why people buy gold in crisis.

Today, in
contrast, demand is fair but unspectacular. Hell, the financial press in
Spain is telling people "gold is a risky asset" that has "lost its
luster"! Maybe the crisis isn't clear enough. Maybe those people who
would buy gold in a crisis already did, four years ago if not last
summer, when the Eurozone crisis ran into the US debt downgrade ran into
the torching of England's towns and city centers.

Or maybe
things have to get very much worse again to revive the lesson of
2007-2009. The lesson that banks do go bankrupt. Debt investments do
evaporate. Central banks will stop at nothing to stem a credit
deflation.
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Dirtbikepilot

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