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The Flight From Gold – A Fall From Grace

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Why have gold investors taken flight from gold as it falls from grace? The sophistry that has fueled gold is being exposed. The gold promoters spun their latest tale by raising unrealistic high hopes for China as their savior as they were buying gold and would use it to back their currency. They tout that the emerging middle class will become big buyers of the precious metals, in addition to China emerging as a superpower, quietly stockpiling its own version of Fort Knox in the vaults of the People’s Bank of China in Beijing. They were even claiming that its stockpile was nearing 2,000 tons to rival that of the USA at 3,000 tons.

All gold sophistry manages to evaporate by leaving behind more losers than winners. They convince people to buy and never sell; the announcement from China shattered that illusion spun by the gold promoters once again. China’s central bank bought only 604 tons of gold over the past six years, amounting to just 1.6% of its reserves. The dream that the yuan would emerge as a gold backed currency exploded. The gold promoters predicted at least three times that amount. These people are worse than used car salesmen are, for at least that trade is now regulated. Nobody regulates the gold promoters so they are the last bastion of the unsupported claims to the “sell anything crowd” we used to call snake-oil salesmen.

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Even the sophistry about manipulations has contributed to the demise of gold and its fall from grace. If gold is manipulated and prevented from ever rallying, then why buy gold if it can only go down? This simple logic has been emerging from emails we get all the time. You can fool a fool, but you cannot fool everyone all the time.

The sophistry painted the picture that gold is artificially lowered to somehow support the dollar, despite the fact that gold is such a tiny fraction of the dollar market. Again, the sophistry has hurt a lot of people but this is highly dangerous for it is destroying the investor base for the metals.

Silver has been even weaker than gold. Crude entered a full-blown Waterfall. Gold actually held up better but its trend is completely in sync with the world’s deflationary trend. The hunt for taxation is causing cost-push inflation as prices rise out of necessity, not demand. The net disposable income is collapsing and these politicians are out to destroy the future. The hunt for any asset, including gold, has transformed what was a freely movable asset into one that is driven underground.

On Friday, Gold Nearest Futures held our Weekly Bearish Reversal at 1084 closing at 1085.5; this has allowed for a little bounce. But this number also is critical for a monthly closing. So pay attention. Breaking 1084 should confirm that gold would break the $1,000 level.