More theories on gold

To me, the recent rapid decline in the POG (price of gold) has not only been surprising, it's been mindboggling! Pretty much every reason ascertained for gravitating to gold has been shown the door. Cases in point...flight to safety (russia/georgia, pakistan), inflation (in china, india and now 5% yoy in US). Now simultaneously, it's interesting to see that US treasuries are getting bought at a rabid pace. However, yield spreads on the 3 month to 10 yr have decreased suggesting more pricing in of a recessionary scenario.

What I think is that many people, esp. those who got in on the trade this year, wear caught in a wave of panic selling. Price is almost always determined by supply and demand, and that's more so in the case of commodities like gold. Sources of supply are the trigger happy hedgies and others who got long recently like many etfs as well (+ maybe some central banks?). As for demand, it is supposed to be the slow season esp. in India. Another reason about Indian demand I believe is that the $/Re has recently appreciated by almost 10%, making the impact of the $ price decrease that much lesser. Also, with rampant inflation and the RBI raising interest rates, I think there's an incentive to lock in higher rates through CD's and the like. Interestingly, I think that when inflation begins to stabilize and even subside a little, and/or the RBI stops cutting rates, we should see a solid pickup in interest. Add to it the seasonal factors as mentioned by the commenter in the previous post and you have what I think makes for a great case of POG going up over the next 6 months or so. I certainly hope it does since I'm doubly long gold! (DGP)