It was mid November when I noticed an odd phenomena. The DOW had been making a slow grind uphill, and the prices of gold, silver, gas, and food started to make a dramatic plummet. This trend continued until the first week of January 2012. The DOW still stood on shaky legs, but seemed to be holding its own.
Yet the prices of gold, silver, and gas started to comeback with a vengeance. In the past few recent weeks, the DOW has busted right through the 12,600 mark and is currently holding around 12.7K and change. This is odd as gold, silver, and gas continue to rise.
The main reason I have been given to explain this is the weakness of the EURO, and its flailing currency. Now we do not actively export any real amount of goods to Europe, and import from the EURO only comprises 4.3% and that is coming only from Germany. This means that as always, this is an issue between currencies that has no bearing on actual goods and services.
The Euro is indeed in trouble – but that is of no surprise; the US dollar too is in trouble which again, comes as no surprise. This being the case, we must ask what makes the dollar worth so much to the guys pricing the markets – especially commodities. Also, why is the dollar expected to enable itself to back up rapidly rising commodities?
The truth is that it is not – nor is there any way that it can be. A currencies power derives directly from whatever it is that backs that currency. In the case of both the Euro and the dollar, this is the country’s Gross Domestic Product (GDP) – i.e. – the valued worth of what the currencies sponsoring country production. Because the CPI does not accurately measure inflation, I will ignore the nominal vs. real GDP straw man nonsense because it has always been inaccurate at best in real terms.
The US dollar is by such terms stronger than the EURO in the current environment – as pathetic as that is. However it also means that this growing Euro-zone crisis is just another straw man meant to explain away some very poor market pricing. If this was indeed the case, than gold, silver, and gas (which export and import levels have not made any significant change) would not still be rising with the Euro still growing weaker. All it does is explains why the dollar has not completely crashed yet.
So in the end, we have to look at who sets the market prices for these commodities, and why they are acting contrary to typical performance relative to the rest of the market. This cannot be done because like a common stock, no one person or entity sets the price of a commodity, but rather on the futures contracts. This means that for some reason or another, many buyers of gold futures expected for something to happen in the last quarter of 2011 that would allow for the dollar to make a bit of a recovery. Unfortunately, I have been unable to find out who the holders of the expired future contracts were, but I find the move to be extremely misplaced.
So in answer to the original question, there was absolutely no real reason for the price of any of the above said commodities to drop as far as they did as fast as they did, other than some really bad future calls.
It does however point to a much larger problem. Everyone seems to think that the market is making a really slow recovery, but recovering nonetheless. They also seem to ignore the fact that policies that caused the economy to get stomped to begin with have not been removed but rather amplified. The voices of those that speak out in opposition to this nonsense are as always drowned out by the media and its abundant flocks.
In short, prices were shortened just before the Holidays across the board. This lent credence to the idea that a recovery is indeed in progress to those that wanted to believe that their centralized leadership was doing the right thing. As a result people took advantage of the extended holiday shopping hours to spend money when they otherwise would not have due to the prices of food and gas alone.
This false sense of recovery and thus security is about to come back in a extreme twist of karmic fate. Though I was surprised when the DOW broke 12.6k, I know that there is absolutely no way it can sustain it past the first quarter of this year. As the government continues its mass destruction of the dollar in the second quarter, the US treasury ratings will once again take a hit. Silver and gold will continue their upward trend while the dollar continues to weaken. Last year it was brought up on several occasions that the dollar should lose its world reserve currency status. Once the Euro breaks and it becomes apparent that the US monetary policies are shown to be just as fraudulent, the dollar will follow suit. At that point, economic Armageddon will hit, and by the end of the year, it will all come down like a ton of bricks.
Of course until that happens, no one will give it much thought. They will be wooed by the media to believe that things are still soluble and that with just a little more time and regulations, things will be fine. Every time the market makes a decent gain, or gold takes a bit of a drop, they will say that people like me are being paranoid and that we must be wrong because if things were that bad, then such gains would be impossible. Some will say this cannot happen because we have a great military. Problem is when you cut the economic spigot, our military loses its potency, and China and the FED are our biggest debtors. This simply means that until it’s over, we will continue to be oppressed by debt and the government that continually pushes it onto us without our consent.
Oh well, at least I have the satisfaction of know knowing the truth of it all.