The vultures are circling. Precious metals bulls, laid flat by gold and silver prices dropping for the 5th week in a row, are watching deflationists such as Harry Dent and the financial media squawk about the imminent demise of precious metals.
The superficial and condescending coverage of the metals markets in the financial press has only intensified over the past two weeks.
In an article that typifies recent mainstream coverage, Matt O’Brien with the Washington Post declared “Gold is Doomed.”
He tells us just how smart economists such as socialist Paul Krugman are, and just how silly and backwards gold-bugs are for questioning them. While he admires central bankers for adroitly managing monetary policy, he fails to mention they have also been net buyers of gold in recent years.
Once again, the focus is entirely on heavy selling in leveraged futures markets, with no mention of huge buying demand in the physical markets. U.S. Mint sales of gold and silver American Eagles – a good proxy for sales of all coins, rounds and bars – surged dramatically in July.
Meanwhile, hedge funds and speculators went net short on gold futures for the first time in history last week. This divergence is extraordinary.
Inflation Deniers Get Boost from Recent Events
The deflationists argue that hugely accommodative monetary policy in the U.S., Japan (and nearly everywhere else in the world) has failed to produce real growth. Debt and obligations to social programs such as Medicare and pensions are so massive they can’t be paid. Therefore, according to deflation forecasters, they won’t be.
Their predictions of default and accompanying bank failures, bankruptcies, and surging unemployment were bolstered by recent news out of Greece. Falling commodity prices and economic malaise have reemerged. They claim zero interest rate policy and quantitative easing merely delayed the inevitable for a bit.
The inflation camp shares the conviction with deflationists that there is too much debt in the system. But they differ on the outcome. Harry Dent and those in his deflation camp figure that central banks and governments will ultimately be powerless to stop default. They think the purchasing power of the dollar will rise against everything else, including gold.
