The Case For Gold Remains Weak

Stocks continue to chop around as we head into the big jobs report this week. But the dollar has been a mover today, as has gold. Let's take a look at the chart of gold. You can see the longer term downtrend in gold since it topped out in 2011. And we've had a corrective bounce this year, which was contained by this descending trendline. Today we broke the trend that describes this bullish technical correction (i.e. the trend continues lower). Invest like a Forbes billionaire — Click here to learn more A lot of people own gold. And it's a very emotional trade. Whenever I talk about negative scenarios for gold, the hate mail is sure to follow. We've talked quite a bit about the drivers of the gold trade. I want to revisit that today. Gold has been a core trade for a lot of people throughout the crisis period. When Lehman failed in 2008, it shook the world, global credit froze, banks were on the verge of collapse, the global economy was on the brink of implosion—people ran into gold. Gold was a fear–of–the–unknown–outcome trade. Then the global central banks responded with massive backstops, guarantees and unprecedented QE programs. The world stabilized, but people ran faster into gold. Gold became a hyperinflation–fear trade. Gold went on a tear from sub–$700 to above $1,900 following the onset of global QE (led by the Fed). Gold ran up as high as 182%. That was pricing in 41% annualized inflation at one point (as a dollar for dollar hedge). Of course, inflation didn't comply. Still, eight years after the Fed's first round of QE and massive global responses, we have just 13% cumulative inflation over the period. So the gold bugs overshot in a big way. We've looked at this next chart a few times over the past several months. It tells the story on why inflation hasn't met the expectations of the "run-away inflation" theorists.