I’ve said that I am expecting a major move in gold soon. Well based on gold’s price action today, it may be on the verge of rallying to new highs. But first I want to see a push to $1365-$1370; it will be very hard for me to get bearish at this point since gold has already worked off its overbought conditions. In other words, the minimum expectations for a correction have already been met.
Even though today’s GDP print came in line with expectations at 2%, it was still an incredibly weak report. In a continuation of previous trends, the majority of the gains in GDP were from inventory growth. This means real final sales were flat and that the underlying demand in our economy just isn’t there. The government must take on a different approach to solving this crisis and spurring investment. Unfortunately, I am quite sure they will continue to mindlessly debase the dollar to jumpstart exports. The whole way our leaders think about the economy is just plain wrong.
This whole notion that debasing our currency will make us competitive is false. Being competitive makes us competitive. Making products of value makes us competitive. Having a tax structure that is stable and reasonable makes us competitive. Having a strong education system makes us competitive. If a weaker currency really drove growth, then Zimbabwe would have the most vibrant economy in the world. Well it doesn’t, and a weaker dollar likewise won’t solve our problems.
We are living in times far crazier than I think most realize. The whole experiment with debt is coming to an end. Our politicians made promises that they obviously could not fulfill. If people in France are protesting and rioting because the age of retirememnt is being moved up 2 years, what will people do when their governments can’t issue debt to keep the Ponzi scheme alive? Social programs are going to be cut in a major way across the Western world, and people are not going to be happy. You see, people will mind their own business as long as asset prices are rising. They will ignore government corruption and just enjoy their lives. But when the economy is in tatters and real estate (with all of the nation’s wealth embedded in its prices) falls, they will ask questions. So when I talk about the coming volatility, I am not talking just about markets. Political and social change is coming, and this is being reflected in the rising price of gold. All of this will make sense in about 5 years when people realize they will not be retiring as planned. Then things will get interesting. I continue to prepare myself for the inevitable. I hope you are doing the same.
Source: Is the Gold Correction Over?