Throughout this year I’ve been pounding the table that this financial crisis would be worse than most investors expected. Frannie and Lehman have finally produced a 1-2 punch that even the most delusional perma-bulls can’t ignore.
However, in the ensuing panic, investors have been indiscriminately selling everything-and I mean everything-but bonds. It’s at times like these that the linear relationships followed by Wall Street trading models are clearest.
And nowhere are they clearer than gold.
Gold is both a storehouse of value and a commodity. However it is the latter quality that has dominated gold trading recently as investors dump the precious metal along with soybeans, copper, and other commodities.
But gold isn’t really a commodity; not like sugar or coffee, anyway. Gold doesn’t have a utilitarian purpose-other than jewelry which is dubious in its usefulness. No, gold is a currency. It is a storehouse of value.
But tell that the droves of lemmings pushing it down along with nickel, wheat and the like. Gold has fallen nearly 10% from $820 to $740 in the last two weeks. And it’s done this at a time in which economic announcements have been HORRIBLY dollar negative.
Consider that the US Treasury just put us all on the hook for several trillion dollars’ worth of liabilities with Fannie Mae and Freddie Mac. As you know, the two mortgage giants have more than $5 trillion in mortgages on their balance sheets. They’ve already admitted roughly $1.2 trillion of this is in subprime or Alt-A mortgages. If these firms are anything like their troubled financial brethren-Merrill Lynch or Lehman-chances are they’re understating the real trouble.
Read full article: Gold is the Real Treasure
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