Mikey22222 The beat goes on

The most obvious explanation for the irrational sell-off in both energy stocks and gold is forced liquidation by big-time players who bet on the wrong side.  Gold has come to the rescue of such players, just having some gold can benefit everyone in times of great financial stress.  However, we are reaching the point where the selling must end.

Some commentators argue that gold's weakness is due to a stronger U.S. dollar -- a laughable argument if we ever heard one.  What investor in his right mind would judge gold "too risky," despite its having survived as a currency and safe haven for thousands of years, and flee to the "security" of a currency whose value has been falling for a century, and which is backed by a government that is a trillion dollars in debt and rapidly creating more debt while in the midst of the worst financial crisis in history?  It boggles the mind.

Truth is... the dollar has NOT been strong.  Rather, the Euro has been weak.

Recall what we have been saying in recent updates about Russia.  Thanks to its recent invasion of Georgia, Russia now has a stranglehold on energy supplies to Western Europe.  Moreover, there seems to be precious little the U.S. can do about it.  In this situation, can you blame investors for dumping Euros and buying dollars? 

In fact, we are surprised the Euro has held up as well as it has.  The only explanation is that investors realize the dollar is not in good shape either, so they are having to choose the strongest of two weaklings.

Eventually, the world will realize that gold is a currency no government can destroy.  And when they also realize there's not very much gold to go around, its price will shoot up.

The hard part is waiting for the world to wake up.  It may take a little more time.  Nonetheless, it would be almost unprecedented for gold not to do very well in the kind of financial storm we are having today.

The only other potential safe haven would be the Swiss franc.  Switzerland has traditionally been independent and a safe storehouse of money in tough times.  But though the franc has held up fairly well, the Swiss too are dependent on supplies of natural gas and oil coming from Russia's sphere of influence.  Since the turn of the millennium, the franc is no longer backed 40% by gold, as it once was, making it less of a haven.  And on top of that, real interest rates have turned negative in Switzerland, making francs a losing investment.

With no other strong currencies that can compete with it, gold will surely have its day in the sun.  We can't say exactly when it will happen, but when it does it will make last week's gold sellers look as foolish as the Bank of England was when it sold a large chunk of its gold reserves for less than $300 an ounce in the late 1990s

ANYONE AGREE ?