rigel

The Strange Case of Dr. GLD & Mr. Bullion

otbricki, the problem is that there's nothing contrarian here. Just because there is a physical shortage of gold doesn't mean that the market is overly bullish on gold. From the information given, it could be that a very small portion of the market is bullish on gold. Given that the physical gold market is illiquid, shortages are bound to occur in even moderately bullish conditions, particularly if those holding the asset don't see a price worth entering the market for. The gold trade is quite dominated by GLD right now.

I'm not making a bullish case for gold, but I am saying that you shouldn't read too much into a small (volume wise) and illiquid market. The headlines for gold are mixed, making a claim of a "contrarian" play simply a rationalization for a gamble. If you have other fundamental or technical reasons to be bearish on gold, that's fine, but let those be the justification for your trade. Here, I'll give you some reasons:

Bearish: Dollar has been declining for a while under the perception that other currencies would be shielded from the US decline. Decoupling was fantasy, the whole world is going to hell, so on a relative basis, the dollar is going to rise. Also, those invested in gold were over-leveraged, and the de-leveraging process is going to sink gold further.

Bullish: All currencies are going to hell, so even if the dollar outperforms relative to other fiat currencies, its purchasing power relative to commodities is going to be weaker (after the painful de-leveraging runs its course). Commodities are in a long secular bull market, and this is only a pothole in the road up. Furthermore, gold can be treated as a currency that can't be weakened by fiat.

Personally, I think that demand for gold will increase. The supply side of gold is well understood (close enough to constant).

Will Gold Break Out?

Iowa515, to my knowledge, the government is actually not greatly increasing the dollar supply right now. However, you are right, the government is issuing debt, which is just as bad as issuing dollars to pay for things.
The monetary policy of the fed is almost irrelevant without any fiscal restraint in the legislative and executive branches. I wonder if the taxpayers would be willing to pay extra taxes this year to fund accounting classes for the government?