Get Ready for $1,200 an Ounce Gold
By Robert Weinstein - 05/23/12 - 4:01 PM EDTTheStreet) -- The gold bulls had an impressive run. Like the start of 1980s attempt at $1,000 an ounce, September of last year almost made it to the psychological $2,000 mark. "History may not repeat itself, but it sure rhymes a lot" (thanks, Mark Twain). It's difficult to find a statement that captures the bull and bear markets better. Yet, even with falling gas prices, a stronger dollar, fiscal crisis in Europe, dropping demand for bullion, lower commodity prices and a downgrade of Japanese debt, some believe inflation is around the corner.
The 12-month change in the index for all items was 2.3 percent in April, the lowest figure since February 2011. The index for all items less food and energy also increased 2.3 percent over the last 12 months. This is the first time since October 2009 that the 12-month all items change has not exceeded the 12-month change for all items less food and energy. The food index has risen 3.1 percent over the last 12 months, and the energy index has risen 0.9 percent.Granted, I understand, if there is one thing a true gold bull doesn't place a lot of faith in, its government reports. But you don't have to believe the report: A trip to the gas station and last winter's heating bills tell the story just as well. For that matter, it doesn't take much more than a look at the Gold Miners to understand what the situation is for gold. Take a look at gold ETFs like Vectors Gold Miners
Buoyed by HopeMany investors have failed to see that lower highs and lower lows equal a shift from a rising market to a falling market. However, confirmation bias explains perfectly what gold bulls are thinking. Confirmation bias is a mental process of assigning greater weight to confirming information regardless of how ridiculous and baseless it is, while at the same time assigning lower weight to any information that contradicts an already established opinion. When I read silly things like a Greek default and monetary easing in Europe will lead to higher gold prices I have to wonder if they believe it, or if pundits are talking their book. Either way don't bet on it. I predicted that a Greek default will happen last year, after the "problem was solved," and that it will involve large loss write-offs for Europe as a whole and French banks in particular. Europe has borrowed and spent like a mad hatter holding an American Express Black Card. The spending limits were set too high, and the bill has arrived, leaving politicians wondering what to do now. Sadly, it didn't take many countries long to mortgage away their kid's future. Don't expect inflation fears in the eurozone anytime soon. Declines in currency exchange value will more than offset continental inflation. The net gold impact is bearish absent a strengthening of the euro against the dollar. With upcoming markdowns in loans, I would expect the Titanic to finish its voyage before European monetary changes create a bullish case for gold.
EnergyAs I wrote in a recent article about oil leading the way for gold, falling energy prices are the final stake in the heart of inflation. The US Oil Trust
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