Gold is “up” roughly $100 for the year, 6% or so. This will be (barring a $100+ year end shellacking) 12 years “up” in a row. The reality is that 1 ounce of Gold that you buried in your back yard 12 years ago is still, well, just an ounce of Gold. It didn’t “grow” or expand, it didn’t breed and have little “goldlets.” No, the ounce is still the VERY SAME ounce. What changed is the purchasing power of your Dollars, Euros, Pounds or what have you… they have shrunk in purchasing power value each and every year for now going on 13 years. I bet that you already knew this but thought it would be good to remind you that it is the currency that changes in value as 1 ounce today will always be just an ounce.
What I do want to mention is that the Dollar’s purchasing power has “shrunk less” this year than in previous years. It doesn’t make sense does it? What with the Fed going all in and announcing the new arrival of at least $ trillion NEW Dollars over the next 12 months. Or the fact that Washington has bumped up against their credit limit and thus their credibility limit at the same time. They also seem to realize that something isn’t (and hasn’t) adding up in their annual budgeting. If they do come up with some sort of tax deal, this will be the first actual budget in 4 years! I somewhat doubt however that any sort of deal or agreement will be forthcoming soon because Congress wants to go home for the holidays as the President vacations for 3 weeks. Of course, the higher tax rates will kick in and benefits will begin to sputter but no matter.
The picture that I’m trying to paint here is that the “Dollar” had a really great year compared to the 11 previous years and did so at the very time that no worse news could have hit the markets for it. In my opinion, the Dollar has levitated on thin air for roughly 1 1/2 years since the last budget ceiling debate/seizure/train wreck. Many would describe Gold as a coiled spring just waiting to explode where in reality, it is the Dollar that’s about to hit a trap door. Again, this is not or shouldn’t be “news” to you.
What may be “news” to you is that the Dollar as measured in terms of Gold has firmed for 18 months now. 18 months is a long time, a very long time for ANYTHING to “base” or to “top”. What this tells me is that Jim Sinclair is going to be very right in a very big way. It is like the Dollar has been having a last gasp from near death and rallied like a dying person does just prior to their terminal decline. Even though our finances have worsened greatly and the supply of new Dollars and debt have increased greatly, the market value of the Dollar has done the opposite to what common sense would have told you.
All I can say is that when common sense doesn’t work and nothing makes sense or can be made sense of… watch out because the “reversion” to sense is almost always rapid, large in size and happens out of nowhere. For 1 ounce of Gold to “cost less” Dollars today versus 18 months ago is ridiculous. You know that more Dollars are outstanding and the system itself has not grown, you know that the debt outstanding and balance sheets of the Fed and Treasury are “worse” than they were 18 months ago. So logic would surely tell you that Dollars should be worth less in terms of Gold, right? Well, mathematically they are worth less or should I say the “fair value” is less. 2013 should at some point when the current shenanigans and tantrums end, be a very VERY bad year for the market price of Dollars. In other words, the Bull market in Gold should begin any day now and make up for lost time (18 months of it)!