Summary

• Gold prices have been in a bear market since the August 2011 peak at $1920
• Prices are making new 52-week lows
• Gold has primarily been a monetary asset throughout history and moves closely with the global monetary base (GMB), the sum of the U.S. monetary base and total international reserves
• Gold has lost some of its luster as a store of value as goods and services inflation failed to materialize after the printing presses flooded the global economy with trillions of reserve currencies during Great Financial Crisis
• Surprisingly,  demand remained steady or even increased as the major central banks emitted trillions in new currency
• The broken credit mechanism resulted in an overall monetary contraction and  shortage of dollars
• The gold bugs had their day as gold moved 650 percent from August 1999 to August 2011 while the GMB moved 455 percent during the same period, the result, mainly of a massive build in international reserves
• The global monetary base will continue to contract over the next several months as the Fed shrinks its balance sheets and emerging markets continue to lose international reserves
• Gold prices will thus linger and drift down toward and below $1,000 unless a major global shock results in a flight to quality
• Just as the simultaneous unfolding of umbrellas do not cause but, instead, reflect a reaction to similar external forces – rain;  so to do comovements in the dollar and gold. In other words, moves in the dollar do not cause moves in gold but reflect a reaction to similar external stimuli
• The next round of QE, which will probably be the result of a G7 sovereign debt crisis, should cause the massive spike in gold prices that the bugs were looking for in round one
• We could be wrong