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The day was off to a good start: Crude oil fell as much as 2 percent to $112.75 a barrel. Platinum plummeted $125 to $1,365 an ounce, its gravest intraday loss since Sept. 25, 2001. And gold fell as much as 4.2 percent to $772.98 an ounce.

That’s a loss of $260 per ounce and 26% off the March peak.

Commodities overall have now lost 21 percent in value from the record they posted on July 3. That means one thing: Welcome to the commodities bear market of 2008. Soon, you might kiss goodbye to inflation, to the American export boom, and maybe even to husky middle-aged urbanites on Huffys, pedaling to work in overstuffed bike shorts and sweat-stained gray t-shirts.

But let’s not get ahead of ourselves.

The pundits who credited inherent economic weakness in the U.S. economy for the rise in gold prices are now blaming the North American and Western European economic malaise for its decline. It must be great to have a one-size-fits all explanation.

The long-term effect of this rapid decline in an asset that has been sold as a hedge against devaluation in currencies and inflation is yet to be seen, especially in emerging markets. Gold supposedly is “real money”. But like fiat currency out in the real world, it sure has some “real inflation” to deal with. And due to the far lower income levels, that “hard money inflation” hits especially hard in emerging markets like China.

Consider this: Just two weeks ago, the Chinese papers were polishing their collective nails on their lapels reporting that “the per-capita disposable income for Chinese urbanites increased 14.4 percent to 8,065 yuan ($1,182) in the first six months over the same period in 2007.”

This is the emerging Chinese middle class, mind you. The ones with money. The ones most likely to buy gold as an “investment.”

In other words, these people just watched their $1,033 ounce of gold — representing their annual disposable income — decrease by $250… a whole three months worth of work. I am almost certain that the bragging rights of “having bought gold below $1,000″ (as pronounced by Howard Ruff earlier this month) will do preciously little to their sense of self worth… or indeed their net worth.

Nor will it foster confidence in further buys.

After all, gold’s drop makes even the renminbi — China’s PPI rose by a 12-year peak of 10.1 percent in July — look like Maine coast granite by comparison.

Disclosure: none.

Source: Hard Money Inflation: Oil and Gold Continue to Plunge Downward