Outlook for gold from the Commodities Report.Angry BugsSo what do you think gold does during an economic collapse and zero interest rates? Apparently nothing. If gold is in fact tied to inflation fears then rate cuts around the world should make gold rally. If gold is a flight to quality then perhaps one of the worst years for the stock market in history would cause gold to fly high. Maybe, just maybe, the fear of a banking collapse would cause people to move into gold. Well, what happened? What happened is gold bugs don't know what they are talking about.
Gold trades with the longer term trends of the U.S. dollar because gold is priced globally in U.S. dollars. This means if you have euros and you are buying gold, when the euro dropped about 30% to the dollar you just felt like gold went up 30%. This means your demand for gold would likely drop. Imagine if at the same time gold went up 20%, it would feel like a 50% move to you. Sure all those issues I mentioned at the beginning play a role, but when the dollar is trending everything else takes a back seat. That is why when the euro bounced back in December gold also went on a nice run to end the year, and if the euro makes another run in January gold could test $1000. However, when the dollar rallies to fresh highs in 2009 gold will sail down to $500 and that is the play.