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The Gold Bears are Winning… Time to Buy?

Bloomberg is reporting that hedge funds (investment vehicles for the wealthy) are continuing their bearish outlook on gold and liquidating their positions for a third straight week.

U.S. government data reveals that net-long position in New York futures and options have fallen by 14%, and that gold holdings have dropped 49% over a three-week period, helping to put pressure on prices, and thereby sending them back to 2009 levels.

Gold is down 15% from this year’s peak in March, even with last week’s biggest two-day rally since June.

Speculators have apparently lost their appetite for the shiny yellow metal because of the recent strength of the U.S. dollar, which has rallied in recent weeks, shooting up to a four-year high. This dollar rally is likely based on the Bank of Japan’s quantative easing (QE) and speculation that the U.S. Federal Reserve (“the Fed”) will raise borrowing costs in the very near future.

Bloomberg is also saying that it has something to do with the fact that inflation has failed to accelerate, which may be true for average people in regards to energy costs, food, and their salaries, but where the rich are concerned this is patently false.

Luxury-Goods-Chart

For example, if we look at Young Research & Publishing, Inc.‘s Luxury Goods Index above, it has recently dipped and looks to have fallen off a cliff. The index is made up of the stocks of high-end brands that most will recognize—Louis Vuitton, Tiffany’s, Hermes, and Sotheby’s, among others.

These stock prices are dropping, or sluggish at best, and with it pulling the index off its peak. This leads to only one logical interpretation… that either the wealthy cannot afford or no longer wish to buy inflated high-end goods.

The Wall Street Journal reported back in March that there were already signals flashing red—some luxury items like handbags had increased 70% within five years. Obviously these increases far outpace inflation, and sit in stark contrast with what the Fed reports and what is happening on Main Street. If prices at the grocery store or at Walmart increased 70% there would be blood in the streets. Literally.

So how is it that the wealthy are feeling the squeeze of inflation but the other 99% have so far avoided it?

Good question.

Max Keiser explains it best in the video below (9:28), but I will attempt to paraphrase and just say that banks are a parasite on the global economy causing deflation on Main Street and inflation on Wall Street. How? By internalizing QE, and by externalizing austerity.

Need more proof? Take a look at the S&P 500. All-time highs… very expensive. Moreover, look at real estate in wealthy areas and at many commodity prices, as they too are falling off a cliff. The 1% cannot easily inflate commodity prices with paper money without simultaneously creating jobs and raising salaries, but they can inflate stock markets with high-frequency trading programs.

What we are seeing are top-down high crimes against humanity at extraordinary levels. Central and private banks have caused the great bubbles over the years (and subsequently burst those bubbles), having wrecked the global economy and distorted almost every single price that can be distorted.

The amazing thing is that not one single head has rolled. Not one institution nor banking executive has been held appropriately accountable. Yes, there has been fines issued and paid… but what sort of “penalty” is a fine when money is handed to you virtually for free from the central banks? Would you ever not speed if you never really had to pay any of the tickets for doing so?

I’ll leave you with this to ponder… if central and private banks are going to continue distorting prices and suck the lifeblood out of the global economy, is it better to hedge against this folly of madmen and buy gold at these low prices, or sell?