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Gold, Aristotle and Rational Markets

|Includes: SPDR Gold Trust ETF (GLD)

The reason I refer to Aristotle, is that to my interpretation he has both been heralded as a hero and villified as a villain, of rational thought.
I am only going to use one of many anecdotes attributed to him to illustrate my point.  He once came across the skull of a horse on the beach and proceeded to count its teeth.  Since Greeks knew that one 's intelligence came from the number of teeth in one 's head (hence the notion of wisdom teeth), he then went on to count the number of teeth in a mare and stallion.  Discovering that the stallion had more teeth, he then concluded that is why MEN were more wise then WOMEN.  Here is an example of incorrect facts combined with unsound reasoning to arrive at an unprovable conclusion.

And more germain to our purposes, just because a line of reasoning arrive at a correct conclusion, it does not necessarily mean the line of reasoning is correct.  I tell you the pink fairies told me it will rain, and it does.  Does that mean that you now believe in pink fairies?

Similarly, I give you this Gold Isn 't Playing Its Part.  Perhaps, because that isn 't really what gold is supposed to be doing.  One of my current themes, is that the two year gold story was not so much a result of the fear trade but that of quantitative easing.  Why?  I concluded that because we have had a resumption of fear both internationally and domestically, in terms of everyone claiming that the economic recovery will be sluggish.  So little has changed on that front.  Basically, the only things that have changed are the end (for now) of quantitative easing and the Republicans who traditionally defend the dollar now taking the Congress.  What this tells me is that at least over the short term, there will be no good news for gold.

There are often many correct concepts in place that contradict each other. Take for example these accepted statements
1)  Commodities tend to move up and down together ie base and precious metals
2)  Weakening economy strengthens gold and vice versa.
Well wouldn 't a strengthening economy imply stronger base metals?  So how do you reconcile 1 and 2.  That 's why no one has all the answers.  This is the reasoning behind my comment to this article

I am short term bearish on gold.  Why?  Because all the short term signals show that AND I don 't see another credible catalyst for gold, YET.  From what I see, and I remind you I don 't have the best vantage point, the next solid catalyst for gold is the debt ceiling.  Basically, if gold is an alternative currency, the debt ceiling forms a ceiling for how high gold can legitimately rise.  The US is currently approaching its debt ceiling.  When it comes time to vote whether to raise it, the environment will have to be examined.  If it seems inevitable that it must be raised AND the Congress at that time is prepared to do so, the whole environment for gold will change.  Just as it did during the inevitable requirement for QE.

Similarly, if the ceiling is never reached or the Congress will not raise it regardless of the consequences, gold will not receive that catalyst and once again gold will falter.  I am not saying that another catalyst will not appear before or after that, I am just saying that from my vantage point (from that of the pink fairies perhaps?) I don 't see it.