Wednesday, October 04, 2006

Gold and Oil

Oil and gold, the two most emotional and political of items. Gold, the only time-honored, outside-the-systems, money. And oil, the life-blood of civilization, at least until some other form of energy is created and placed into wide use.

For obvious reasons, politicians and particularly US politicians in power want both gold and oil -- down. And they will do whatever they have to -- to drive both of these items down. They may be successful for a while -- but only for a while.

During the 1970s as we sat with gold during that great and wild precious metals bull market. At one point in that bull market gold dropped almost 50 percent.

Gold is highly emotional and is subject to brutal corrections, as the gold bull seeks to shake its riders off it back.

Natural gas is down, oil is down, copper just dropped, platinum and silver and palladium are down, soy beans are down, sugar is down, coffee is weak, housing is soft (even in Manhattan I understand housing and condos are starting to "give"). This is a disinflationary background, and it's a intermediate-term negative background for gold.

Those holding gold in nonphysical form have been knocked out of the box. It's as simple and brutal as that. Stop-losses have been hit wholesale. What we're seeing now is the slaughter of the many holders of "paper-gold."

Look, the long-term future of this country and in the central bank system is expressed in one word -- inflation. Ultimately fiat paper must fall. That's why we hold gold. What form we hold gold in is crucial. If you own paper gold you are vulnerable. If you own physical gold -- you OWN it. There is a difference. And in my opinion, it's a big difference psychologically.


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