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MV Mailbag: Why Is Gold Down?


Gold bulls need to be prepared for violent swings.

Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial). It's being shared here for the benefit of the Minyanville community.

Prof Lewis,

Why has gold been hit the last few days?

-Minyan MC

Minyan MC,

I suppose some gold bulls are upset that a story in the Wall Street Journal said the Federal Reserve is unlikely to boost its purchases of Treasury bonds, so some might think this has removed a near-term upside catalyst. Who knows? (I'm not sure I buy that story's message either, incidentally).

But let me emphasize: Gold is a long-term play. The US government has only 2 options: default or debase. Both lead to more inflation. What the Fed "wants to do" is irrelevant. What it will be forced to do is all that matters, and it will be forced to monetize more government debt this year. Whether that's in June, July, or August doesn't really matter. The picture hasn't changed.

Gold bulls need to always be prepared to take violent swings, just as short-sellers in the financials did last year. Like those sellers of financials, gold bulls will get paid off big at the end of the day if they stick to their convictions.

For more data, look to GLD or GDX.

Professor Lewis
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