Gold’s drop below $1,000 today in unison with a falling market, increased economic worries, and a strengthening dollar, should be setting off alarm bells for gold bugs inside their fall-out shelters.
The market has taken a turn for the bearish… yet gold is down almost 2% in a day.
So what scenario exactly is gold hedging against?
Should the current economic recovery come to a halt, deflation, not inflation, is likely to be the prime concern.
Such a scenario would probably see the US dollar strengthen, making gold right now an asset class more correlated with stocks and economic recovery than crisis.
Thus gold could be investors’ version of World War II France’s failed Maginot Line — An expensive defensive hedge, yet unfortunately built to fight yesterday’s battles.
Todays markets have changed, even for gold itself. Long-biased speculators… risk-takers, not the risk-averse, have taken hold of the market at current price levels.
Commodity Online: the number of speculative longs at COMEX is almost 10 times higher than the number of outstanding short positions and this is a big concern and a big danger for the market because those are weak hands
Gold will be little defence against the deflationary panzers which any US economic slowdown may bring.