Fools Gold

By — Holly Stubbs

Economists are saying the recession is over. Job losses in the United States have stopped. The US has had the strongest GDP growth in six years. The major emerging markets: China, Brazil and India are posting strong growth.

However, investors are still skittish. The gold and bond market are robust, with gold closing at $1,150 per ounce.

Investors are still not convinced in the durability of this market rebound, and there are several weak areas that point to continued volatility. The high unemployment rate and the continued foreclosure crisis provide a drag on the overall economy. Internationally there are some signs that the economy may not be out of the woods yet. Europe is still suffering economic turmoil from continued fears of a Greek default. There are also worries the Chinese economy is in the middle of a speculative bubble caused by an undervalued yuan. Many investors are fearful of a double-dip recession.

These are good reasons for caution, but the high price of gold is also being driven by a certain amount of irrational fear and good old fashion shysterism. A search for gold on the Internet will take you to many sites that tout gold as the Armageddon killer. Using a combination of fear and pseudo market babble they sell the idea of a gold investment as an investment to protect against another even more cataclysmic global economic failure.

The high price of gold is also being driven by the growth in US exports the shrinking trade deficit. The manufacturing sector is strong and show signs of continued growth. Gold is used in many industrial processes and a growing manufacturing sector pushes the price of gold higher.

So gold is being pushed higher by both growth in the economy and fear that the economy is not growing. This points to a decrease in the price of gold even given continued economic volatility. Why? These are contradictory expectations. Both cannot be correct. Eventually gold will reach the top of the bubble then it will fall and fall quickly.

Prediction: Short term gold continues a slight growth based on the uncertainty in Europe and Asia.

Long term, gold drops dramatically.

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