Get Ready for $1,200 an Ounce Gold
"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.
Inflation of course is the result of greater dollars chasing relatively fewer goods. It's easy to see the impact of inflation with the price paid at the pump, the grocery store, housing and labor costs. You don't have to take my word for it, government reports state the same.
From the latest Consumer Price Index report (April 2012):
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 (GDX) , Junior Gold Miners (GDXJ) , Gold Trust (GLD) , and the iShares Gold Trust (IAU) to understand the pain investors are enduring with gold-related stocks.
Starting with the monthly chart, GDX has broken trend line after trend line and a target price of under $32 before the current trend line break fulfills. The weekly chart displays the 60-week moving average crossing below the 90-week moving average along with many other bearish technical indicators.
Gold miners comprising GDX and GDXJ are hurting because as demand falls, so does their profits. While many miners sell future production causing a delay between falling gold prices and stock prices, it eventually catches up. If recent falling gold prices actually signaled a buying retracement instead of a complete shift, I would expect gold bullion sales to increase as price recedes. Instead, prices are dropping right along with demand, a striking bearish indicator.