12/14/2009 Has The Gold Bug Been Squashed?

by Shaun A. Siddiqui
(Virginia)

Two weeks ago I wrote an article about the state of the economy and what would have to happen in order to get out of a recession.

In it, I made two important comments. One was that gold was beginning to become over priced and that it would be poised for a significant drop very soon. Two, I mentioned that the commonly held inverse relationship between the dollar and the stock market would (for a short period of time) collapse.

This past week has seen both predictions come true. Gold has dropped by more then 4% and the dollar and the stock market seem to be going up in tandem.

But is this the "major market shift" I was looking for? Definately not. In the scheme of things this can hardly be considered major. In the short term the bull is still alive and well in the bullion market. Last weeks correction occured because hyper inflationary fears have left the market place due to relatively up beat economic news.

Unfortunately, in order for the economy to keep moving forward, the government will need to continue printing billions of dollars which will mean higher gold prices in the short term.

So what should you do? Buy a 3-4 month call option against gold... but don't believe all the hype. Gold is not a space shuttle. It can't shoot for the moon without crashing.

The gold bug will be squashed sooner then you might expect.