Gold Defies Optimism - Up Again This Week

Posted: Jan 23, 2012 12:01 AM

Gold was up again this week, seemingly flying in the face of positive economic numbers and a strengthening U.S. dollar. 

Unemployment is down, hiring is up, the dollar is gaining ground, and corporate profits are healthy so what’s the problem?  Why is gold not climbing aboard the good news express and going down in price, as it should in a prosperous economy? 

A few of you are probably trying to shush me at this point, hoping I don’t jinx the bull run in precious metals, but I keep going back to one of my personal fundamental theories of economics: Gold never lies. 

Take a look at the 20 year gold price chart.  Notice the period around 1999-2002.  We were still struggling with the Dot Com Crash of early 2000 when the tech bubble burst.  By 2002-2003, we were already well into the next bubble which we all know now was housing. 

By the end of 2003 the unemployment rate in the U.S. was at 6.1 percent and falling; the economy was running red hot.  All the same gold was not fooled.  From 2002 and onward gold was on an upward trajectory.  Perhaps it was the Fed monetary policy, or the fact the economy was being inflated by the artificial injection of massive debt from both the housing market and deficit spending on two wars, but gold surged. 

Now we know gold was one of the few indicators telling us the truth in those days; a persistent red flag during what appeared otherwise to be sunny economic times. 

What gold is telling us today is that nothing much has changed, even though there are positive economic indicators flashing in a number of sectors. 

Despite rising corporate earnings, gold prices are saying many people have lost faith in the equity markets and are tired of being chiseled by ever increasing fees.  

In spite of better news in the housing market, gold prices are saying that home ownership is a fraud.  You don’t own a home, the mortgage company owns it, you just get to live there in exchange for paying the cost of maintenance, interest, insurance and taxes.  We discovered in 2008 that the mortgage company doesn’t seem to owe you much of anything in return when things get sideways. 

Today gold prices are shrugging off the good news and pointing to more trouble ahead.  This time, I’m inclined to listen. 

Chris Poindexter, Senior Writer, National Gold Group, Inc