I have believed for months that the U.S. economy is at the edge of a recession. Europe is in recession. Japan probably is. To expect the U.S. to avoid world recession is to expect a miracle.
The precious metals are not recession hedges. Commodities in general are not. Commodities fell along with gold and silver.
On February 13, I wrote this for my GaryNorth.com subscribers.
I think the USA is moving into a recession, which is why I have not believed that gold’s price will go over $1800 in this phase of the business cycle. But there is also increasing demand by central banks to buy gold. This is especially true of Asian banks. I do not think that the quantity of gold purchased by the central banks is going to offset by much the total amount of gold which is brought into the economy every year, which is about 2000 tonnes.
The United States may be able to dodge the recession bullet. The incredible expansion of Federal Reserve purchases of long-term government bonds and Fannie/Freddie bonds is indicative that the Federal Reserve is doing its best to avoid recession. Europe is in a recession, and so is Japan. But the United States, if the Federal Reserve continues to inflate at this rate, may be able to keep from falling into recession, although I do not think there is anything like a sustained economic recovery in the works.
Gold’s decline indicates a declining fear of imminent price inflation. Europe’s economy has avoided a major crisis, again. This reduces demand for gold as a crisis hedge.
The threat of a European central banking dump of gold reserves, triggered this decline. I think there will be no such sales. If there are, other central banks will buy this gold.