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Gold about to drop?

When will gold drop below $700 an ounce? It could be soon.

Gold is an inflation hedge and right now inflation is disappearing.

Oh, I know that that the Federal Reserve has created a lot of new money. But the offset to that is a lot of old money has been destroyed by falling house prices, soured mortgages, falling stock prices, rising credit card defaults and failing businesses.

The dollars lost in the current economic recession are every bit as important to the total demand that puts the price level where it is. If they outnumber the new  dollars created by the Fed, well, then deflationary or disinflationary forces are stronger than inflationary forces.

Right now gold is the exception. Copper has retreated so far that even the old copper-zinc cents of 1982 and before are not worth melting. The metal value in a nickel has gone from almost twice face value to half face value, a decline of roughly three-quarters.

Silver is down. Platinum is on its back because of the near shutdown of the auto industry.

Only gold remains. Is it a forecast of things to come, or the last stronghold of wishful thinking?

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One Response to Gold about to drop?

  1. Mark says:

    Yes we seem to have deflation in commodities. We have also seen a drop in the price of gas and heating fuel. But everywhere else, prices are still going up. Utilities are still asking for rate hikes. Airlines have not dropped their fule surcharges. Milk dropped a bit, but most other food prices keep going up. So the real issue is this deflation for real or just another bubble that will lead to hyperinflation? There are different opinions on this, but at this point no one really knows what will happen to the price of gold and silver by next year. The spot prices have deflated in a time where the supply of physical metals have dried up. It flies in the face of everthing we know about supply and demand.

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