What' Driving the Markets Lower?
With gold temporarily topping out a couple months ago at $1900 an ounce, and currently trading at $1570, many are probably concerned that the gold bull market is over. Nothing could be further from the truth.

The first explanation for the current downturn in prices is offered up by silver analyst Ted Butler:

"...the next logical downside trigger point in gold for selling by the technical funds and traders was the 200 day moving average ($1610). This particular moving average had not been broken in gold for almost three years, back to when gold was under $900. The longer a moving average remains unbroken, the more significance it holds to technical traders. This level has now been broken as well, encouraging those holding gold on technical or price movement grounds to sell. This selling begets other selling as fear of further losses resonates through the market as prices plunge. The price declines step up demands for more margin, prompting further long liquidation."

The translation of the above is this: This short term liquidation in gold is beginning to feed on itself. Since the gold market is moved in the short term by traders making purchases with borrowed money, and not long term investors, each time the market dips a bit lower, they are forced to sell more and more of their gold to cover their losses. So the cycle begins to feed on itself, because the more that is sold, the more the price is forced down, until all the hot money is forced out of the market. Once that happens, prices rebound. This happens every so often, but long term it is a non-issue.

In addition to the above, we are also in the midst of a dollar short-squeeze. In short, a dollar short-squeeze is where major global financial players have borrowed massive amounts of dollars and now they are being forced to buy back those dollars. To do so, they are being forced to liquidate asset, gold of course being one of those things being heavily liquidated at present to raise dollars. Again, this is a short-term issue and has no bearing on the long-term direction of the gold bull market.

Now, moving on, you might be asking, "so what started this little sell off to begin with?"

Well, the fact that we are in a once-in-a-lifetime gold bull market does not mean the market will not have its normal ups and downs along the way. No market ever goes straight up. In fact, in the last ten years that has seen gold up over 500%, there have been six corrections along the way of 15% or more. And after those six corrections, within three months the price of gold rebounded on average around 11%. (The following charts are from Casey Research's article entitled "Pullbacks in Perspective.")



That being said, you must also realize that sometimes these ups and downs are exacerbated by the anti-gold crowd that loves to beat the price down when one of these normal corrections come around.

Why? I'll let Peter Grandich of The Grandich Letter answer that one for you.

"And that brings me to the final piece of the puzzle that has made up the gold game since it first started trading freely in the 1970s: gold is, and shall always be, hated by the overwhelming majority of people who work in the financial services industry and the media that follows it. You’re never ever, ever, ever, ever, ever, ever, ever going to find universal overall support for gold because to do so would equate to undermining what drives the financial services industry worldwide – the buying and selling of financial assets. Just like you will never hear a Ford dealer tell you to buy a Chevy or an Atheist tell you to love Jesus, an industry that makes its living selling stocks and bonds isn’t going to tell you to load up on something that usually benefits from their misfortunes. And neither shall the media in general who lives off those selling stocks and bonds."

So, here's the bottom line gang. NONE of the financial difficulties that started the gold bull market 12 years ago are any better. In fact, they are worse. MUCH worse! Therefore, owning gold today makes more sense than it ever has before. The world's financial problems are much worse than they were even a year ago. So don't let this little bump in the road cloud your long term grasp of the fact that gold is your only lifeline in this sea of worthless paper money.

Keep the faith. You'll be glad you did.