SOS Myth on Gold

The major non-confirmation between these two markets is clear, as is the overlying message: IF demand for gold truly outweighed supply, then its value as measured in other currencies would increase.

The rise in gold is primarily the result of speculation and a falling U.S. dollar. These are exactly the “untenable” forces that contribute to a Bubble, not a genuine Bull market. The difference is only a matter of time.

4 Factors to know Gold price increase is Genuine or just another Bubble




To know whether a diamond is real, it must cut glass. And, to know whether the bull market in gold is real, it must encompass at least one of these FOUR traits:

A surge in demand that outpaces supply
A falling stock market, which raises the “safe haven” appeal of precious metals.
A real (not imagined) threat of inflation
An increase in value relative to major foreign currencies

Right now, the Gold market can NOT check off a single one of these items. Case in point:Supply: Demand for gold from jewelry makers – which comprises 60%-70% of the market – has plummeted to its lowest level in 20 years.

“Safe haven” appeal: From its March 2009 bottom, the U.S. stock market has soared 50% right alongside rallying gold prices.

Inflation: As the October 2009 Elliott Wave Financial Forecast (EWFF) notes: An increase in money supply is only inflationary if it is used to RAISE the total amount of credit. This is NOT happening, as both bank credit and consumer credit levels are contracting for the first time since World War II.

A gold rally in other currencies: Again, the October 2009 EWFF presents the following close-up of Spot Gold prices VERSUS Gold denominated in foreign currencies such as the Canadian dollar, the Australian dollar, the euro, franc, pound, and yen since 2007. (see chart above)

MyView

• Most major media is in a view of GOLD is going to hit the roof (on basis of inflation - which is a myth)
• Most hedgefunds, traders and speculator, is gearing up, to buy gold, guess what will happen when the US dollar rally, like in July 2oo8, all other financial assets dropped (commodities) but at different pace (energy will drop first, then agriculture, then precious metals)
• Now only 3% is bullish on US dollar vs March 9, it was 98% bullish dollar
• Don't forget, there is a new game in town call US Dollar carry trade (how will it turn out when it unwind)

The rise in gold is primarily the result of speculation and a falling U.S. dollar. These are exactly the “untenable” forces that contribute to a Bubble, not a genuine Bull market. The difference is only a matter of time.

The right question would be, will US dollar continue to slide?

If yes, hard assets will continue to rise

If not, like in 2008, all financial and hard assets will drop

One way to find out is the bullishness in US Dollar is only 3% vs March 2009 at 98%. It is very clear that when US dollar weakens, crude oil, gold, commodities soar. This is not REAL demand and supply of HARD ASSETS, this is demand and supply of FINANCIAL ASSETS, i.e. Dec Gold contracts using borrowed money is USD12 billion.