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Gold prices set for further steep declines

Today's Financial News - Posted October 24, 2008

There is nothing left that could keep gold from sliding further. Applying the oil-to-gold ratio, the gold investor’s favorite tool in a precious metals bull market, every dollar shed by crude oil translates into a loss of $7.50 per once of bullion.

by J. Christoph Amberger

Baltimore — (TFN): Emerging markets plummeted this morning. So did all those foreign markets that American advisories touted as hoards of safety and beacons of unhinged, “de-coupled” and uninhibited growth just three months ago. And the American markets sprung the safety catch on futures trading.

But the legend of decoupling is dead. As is the myth that oil price increases last year were driven by demand. China and India didn’t double demand for oil between September 2007 and July 2008. And they didn’t halve it between July and October 2008.

As the speculators and hedge funds are unraveling, the market is flooded not just with oil but with commodities. Deleveraged portfolios are sucking up U.S. dollar supplies. The dollar is now at $1.25… the euro having shed an unprecedented 30 cents in just five months!

Demand for physical gold may be soaring… but not as much as the demand for U.S. dollars it is supposed to hedge against. So as markets crashed yet again today, gold fell nearly 5 percent in Europe. Below $700. And uncomfortably close to $680.

Make no mistake about it. You may have been told that “gold is money”. But it’s really just another myth that is being choked to death right now. Gold is and always has been a speculative commodity at the tender mercies of supply and demand.

People have difficulties admitting that. I sent one of my articles to a very good friend of mine yesterday, asking him to include it in the messages he sends out to his brokerage clients. “I can’t use your article for a few reasons,” he responded. “It is too negative on gold. Your position deviates too much from ours.”

Their position has been that the dollar is doomed, foreign markets are the salvation for stock investors, and that gold will be the asset of last resort for American investors. My friend is on the lecture, television and op-ed circuit. Two out of three ain’t bad, an old broker saying goes. But three out of three seems a bit much!

There is nothing left that could keep gold from sliding further. Applying the oil-to-gold ratio, the gold investor’s favorite tool in a precious metals bull market, every dollar shed by crude oil translates into a loss of $7.50 per once of gold. Oil prices are headed to $50, if not $30 per barrel.

If you hold any gold in your portfolio — if you bought as little as an ounce of gold since 2004 — it’s high time to take out some insurance against further drops! My colleagues and I have put together a simple investment strategy that translates gold’s current downside into cold, hard gains for you… without you having to sell as much as a single Krügerrand! This morning, it was up over 60%… over twice the amount gold has lost since its peak. Please read on…


Next Article: Apex Silver (SIL) turning to lead — Here’s what to do now!

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Posted by J. Christoph Amberger · Filed Under Gold and Resources 

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