Wheat price has broken. Rice price has a short-term top. Corn may be topping out. Gold is down. Silver has taken a dive. Housing prices are in the middle of decade long bear market. Yet, oil futures continue to move higher, fueled by margin led speculation. All of that oil action is happening when no shortages of petroleum seem to exist anywhere. Oil price is rising due to 93+% financing of the purchase price of a futures contract. With that level of margin requirements, one has to wonder if the NYMEX is acting responsibly. We need to ponder how low Gold might slide when paper oil does finally start liquidation. Gold certainly has neither confirmed recent oil price, nor possible negative ramifications of persistent $121+ oil. Does Gold know something the paper oil speculators do not?
$Gold continues to digest the juices that pushed it to more than $1,000. A second period of deeply over sold conditions developed last week. That was expected as a correction is composed of several such events. Corrections are a series of sharp rallies from deeply over sold, followed by further corrective action. That chain continues till final bottom is found. We never know final bottom on a correction till well after the fact. For that reason, investors should be adding to portfolios during those periods of extreme emotional absence of buyers.
Market participants have convinced themselves that the U.S. dollar's bear market should pause. That pause, while they trade paper oil, has contributed to Gold's correction. But a nation's money is really no more than a claim on the net assets, or equity, of a country. As past and present policy errors at the Federal Reserve continue to push the value of U.S.'s equity ever lower, dollar's bear market will renew. $1,500+ Gold is not a dream, but rather it seems a policy goal of the Federal Reserve.
GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. To receive these reports, go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html.