Why is Gold in the Toilet?

The price of gold has dropped today $93, as I write this, to $1409 per ounce ... down from $1803 last August ... and an all-time high of $1920 in September of 2011.  That is almost a 27% decline and is causing a lot of consternation among the gold bugs and panic among those schlemiels who bought gold after listening to those high-pressure ads on television.  Now the question is, why has this "guaranteed investment" gone sour,  I can offer four reasons:

1) The price of gold has been anticipating the return of rampant inflation as a result of the U.S. Federal Reserve Bank and other central banks around the world printing new money as fast as they can get the paper delivered to their mints.  Like any speculative market, the price of gold was discounting the future and, when the "future" doesn't occur on schedule, things can get messy.  Ben Bernanke's interest rate manipulations and a continued weak U.S. economy/employment picture has kept a lid on inflation  ... which has pushed back the date of the big payoff for U.S. gold bugs.

2) Since there are significant carrying cost to owning gold (storage fees, margin interest cost, no dividends, and steep selling discounts), an unloading of same was almost destined due to the drawn-out timing of the expected "rally." (The price of gold in Japan, based on the recent and dramatic quantitative easing of the yen, is hitting new highs.  This maybe is another gold market bubble in the forming.)

3) Because of the austerity measures being imposed on some European Monetary Union members, there is considerable pressure on these central banks to sell gold reserves to meet their debt obligations.  Apparently last Friday, Cyprus was the first country to crack under the strain and either is or will be selling off significant amounts (tons) of gold.  Are Spain, Portugal, Italy, Greece, and Ireland to follow?

4) Independent of these three fundamental factors, clearly technical factors are now ruling the roost.  If speculators, such as hedge funds, see the price of gold plummeting, they head for the exits, elbows akimbo.  Small private investors often get crushed in the stampede.

So, dear readers ... gold now is in the toilet ... and may stay there until there are real signs of inflation rearing its ugly head again.  When might this occur?  I am not that good at predicting things.  But, I can safely say that, when it does occur, it will probably be lightning fast.

Afterward: as of 10:30 on 4/15/13 gold is selling for $1342 per ounce.

Greasing the Skids

Greece erupted in disturbing violence yesterday in response to the austerity measures that are being required of it to get the next round of bailout money.  I won't go into the details of this rioting ... you can read about it here.  The point of this blog entry is to reprise two data points I heard this AM on television.  First, in 2010 Greece passed a set of austerity measures to get the first round of bailout money - $61 billion.  It implemented not one of them.  Secondly, this time around the European Union (read Angela Merkel) is not taking the Greek Parliament at their collective word.  It is requiring the Greek party leaders to sign personal pledges to implement the measures that were passed into law yesterday before the $160+ billion of bailout money will be released to them (see: Wall Street Journal Article).

This sounds to me a little like the Treaty of Versailles that was foisted upon and humiliated Germany after World War I ... which many feel set the stage for World War II.  One wonders what this forced-fed dirt dish will eventually elicit from Greece?  Enter the drachma [stage right] ... ?

Juxtaposition XVI

Austerity measures?  We don't need no stinkin' austerity measures!