Precious Metals: Just a Squiggle

By John Rubino, of Dollar Collapse -

Now this is a correction. In the space of three days gold is off 10% and silver 25%.

What's happening? Two things:

First, you don't get this kind of run without this kind of correction. When something soars, the number of people with huge embedded profits eventually reaches a tipping point where, for a while, selling necessarily overwhelms buying. So regardless of what's happening in the world, gold running from $300 to $1,900 and silver from $4 to $49 would create exactly this kind of volatility.

Second, all the borrowing we did to stave off the 2008 debt crisis has created a new one, with Greece on the verge of default and the US in trillion-dollar-deficit gridlock — and a realization that the people nominally in charge have no idea what they're doing. Where new plans to create jobs or lower long term interest rates used to be met with enthusiasm, they're now being met with disdain. This is huge. In the space of a few months the dominant financial fear has shifted from inflation back to deflation.

In other words, it's 2008 again, but with much bigger debt numbers. Which takes us back to precious metals: Notice on the chart below that gold got whacked the last time conditions were deflationary. Between early and late 2008 it lost about 25%.

Then recall how the world's governments reacted back then and note that they're all still armed with printing presses and terrified of upcoming elections. If a Greek default produces panic rather than relief, expect QE3 in the US and something similar in Europe, where the ECB is already becoming a clone of the...

Read the full analysis here.