The reason why the price of gold will fall has to do with the fact that the dollar is debt-based money - and that gold is priced in dollars. But it is also true that most people outside of dollars will probably experience a lesser fall (if even one at all, depending on the currency).
Note - I am talking about developments over longer periods of time, more than just a few days or possibly even weeks, so it is possible that for a time during the transition period, gold and the dollar will both go up. Individual markets do not always turn at exactly the same time; in fact, if it is a major turning point, the turns in the individual markets can be spaced significantly apart in time. But, ultimately, as the overall economic circumstances continue to develop, gold should go down in a big way. Remember, this website is predicting a big deflation, not an inflation, and gold is regarded by most people as an inflation hedge. When it is obvious that prices are going down instead of up, gold should fall in a big way.
What will happen is as follows - soon, there will be major debt defaults and that will greatly reduce the number of dollars available, thus causing the value of the dollar to go up (a process that has already started, but it is not nearly finished yet - and it is a process which almost no one expected). (By the way, it is entirely possible that the value of the dollar will crash later - see below.)
When the value of the dollar goes up, all commodities priced in dollars, including gold and silver, go down.
As for the mechanism at a people level, look at it as follows - when the debt implosion happens, people will be scrambling to get out of debt any way they can and most of them won't have much cash, so they will have to raise cash any way they can, probably on an emergency basis, and so they will probably even find themselves selling precious metals that they have, needing to take care of short-term issues at the expense of long-term needs.
Since prices of commodities are determined at the margins, all it takes is a few sellers to cause the price to start being driven down.
Once that process gets started, it will probably not take long before it effectively becomes an avalanche.
Once the debt has been wrung out of the system - probably mostly through defaults - then whether precious metals go up at that point depends on what the government tries to do at that point to get the economy going again.
If the government tries to inflate, we will end up with a classic hyperinflation at that point (and a crashing value of the dollar) - and gold and silver will go up accordingly.
If the government does not try to inflate - and there is no guarantee that it will - then we will probably experience continued deflation and in that context, precious metals will go down even more.
On the long-term Elliott wave charts, it is clear that gold and silver are headed way down in the relatively near term - the question is what happens after that because gold traded in dollars does not have an extensive history because the price of gold was fixed for a long time, so one does not know what the price will look like way down the road.
If the government inflates at that point, gold and silver will go way up - but if that does not happen, gold is likely to go below the low experienced about 10 years ago because there will simply not be enough money circulating is society to support a higher price.
The recent word from Bob Prechter (relative to March 8, 2010, when I wrote this) - which is, as usual, a recommendation that goes totally against the conventional wisdom at the time, but is usually right - is that people these days have the last best chance to get out of precious metals at a reasonable price yet for quite a while (but please see my other comments below).
A further note about Bob Prechter. His company was founded in 1979 and he has been right about most markets most of the time.
But the market he was most wrong about along the way, in that case from just after the crash of 1987 most of the time until a couple of years ago, is the biggest one of all with regard to predictive value for most people - the stock market - and the reason why was that he expected the stock market to go down a lot sooner after the crash of 1987 than it did.
He is almost totally focused on Elliott waves - and his company is entirely based on that (though he also knows about the Kondratieff wave and has even talked about it from time to time) - and, in fact, using Elliott waves to try to explain what happened is not trivial (although the socionomic explanation he uses - socionomics being something he developed on the basis of Elliott waves - is actually quite straightforward, but in my opinion still does not address the most fundamental reason why it happened).
I think the easiest explanation of why the long stock market boom happened, and a quite easy one, that is also comprehensive is in the context of the Kondratieff wave, which I knew about in the first place before I knew about Elliott waves in detail (that is to say, I first learned about the Kondratieff wave in detail).
If one knows about the details of the Kondratieff wave, it is easy to see why starting to enforce the law against recessions during the plateau phase of the Kondratieff wave (which is the third of the four phases - the four phases are growth, stagnation, plateau, and depression) resulted in the plateau phase being extended for years beyond where it would have ended without such intervention.
The main two characteristics of the plateau phase are slower (relative to the growth phase), but positive, economic growth over the course of the phase (always lower growth than during the first phase, the growth phase, at least in terms of sustainable growth) and a soaring stock market (i.e., it goes up by substantially more than it did during the growth phase).
All that the authorities have done this time around is to force the stock market even much higher than it would have gone otherwise (and, of course, that also meant that time was involved, because it took a fair number of years for them to do that) and that they kept pumping up the economy when growth wanted to go down below zero, resulting in the time-frame of lower, but still positive growth lasting much longer than it otherwise would have, but with ever-larger government intervention (and eventually ever-larger deficits) being necessary along the way in order to sustain that - and, in fact, they were not able to sustain positive economic growth continuously along the way, there were a couple of mild recessions along the way (in other words, cycles still manifested somewhat along the way), in the early 1990's and in the early 2000's, just that those were the most mild recessions in US history because of all the pushing along the way by the authorities.
The problem with that is that the cycles will not be denied (in their full) forever - and so the more the authorities have pushed, along the way to prevent downturns from happening, the more the imbalances have built up along the way, with the level of imbalance built up from 2003-2007 truly astounding on top of everything else that had built up already by 2003.
But once I knew about the law against recessions in the summer of 2001 and once I knew that the authorities had, in fact, saved the economy in the early 2000's (which was not yet a given in the summer of 2001 - and wasn't really totally clear until probably the summer or fall of 2003, actually), I knew that the level of imbalances that would be built up by the time the next downturn would be due sometime between 2007-2010 would be so great that it would probably overwhelm the Fed, and that is exactly what happened.
And I also knew (in light of everything I already knew by the time I found out about the law against recessions in 2001) that because so much in the way of imbalances would be built up by the time the next downturn came (and also because so much positive attitude would be built up by then on the part of consumers in the wake of the almost entirely successful enforcement of the law against recessions for 20 years and, overall, the 25 years of nearly continuous economic growth since growth resumed in August 1982) that when that downturn hit, the consumer would be utterly flummoxed and it would be a much deeper downturn than just about anyone was ready for.
That is exactly what happened - and my methods will successfully predict the rest of what is coming, too (just not necessarily the exact timing of it).
So, relative to Bob Prechter, what happened in the end is exactly what I knew would happen eventually - once things got to the point where it would be impossible to enforce the law against recessions (a point that was reached in 2008), Bob Prechter would start being right again in the stock market, and he would be right about it from then on, and in fact, EWI has successfully anticipated the Elliott waves (both up and down) in the stock market ever since, even at the very-short-term level in most cases (as was evident from the Elliott wave Short-Term Update, which comes out three times a week). But note as of the end of March 2010 - a couple of weeks ago, the traders managed to knock the stock market to a new high for the move again, thus negating the bearish signal from mid-January for now, and they continue to inch the stock market up in the meantime (clearly, the law against recessions mentality at work again). It remains to be seen how long they can keep it up - there is no telling, right now, how long they will be able to near-term - but the market remains very weak overall and they will not be able to keep it up for a long time, unlike what has happened in the past until the fall of 2008.
Because of the tremendous build-up of imbalances in the time since 1982, which have only been somewhat, slightly, wrung out of the system by the downturn that happened in the meantime, the gigantic deflationary depression that Bob Prechter has been predicting for years will, in the end, be even much more gigantic than he probably ever could have imagined when he first started writing about it in the late 1970's.
(Program note - Bob Prechter discovered Elliott waves in the late 1970's. Once he looked at them, he immediately realized that they predicted a major stock bull market starting soon - which got going in 1982, somewhat later than he expected, and which almost no one was anticipating while Bob Prechter was waiting for it - which would be the fifth wave up from 1932, but that would also complete the fifth wave up from the late 1700's, the entire five-wave move up from 1932 being the fifth wave of the move up from the late 1700's, and then the biggest bear market since the 1700's would commence. Of course, he also knew that by the time that bear market got going, everyone would be so enamored by the intervening stock market upmove that he also was anticipating from the late 1970's, until it started in 1982, that almost no one would see the beginning of the big bear market coming - just that he did not realize at the time that the stock market upmove, which turned into an outright long-term boom, would last nearly as long as it did, and the fact that it did last as long as it did, about 25 years, just made all the more sure that when the downturn finally came, almost no one was ready for it.)
One more note - at a philosophical level. Elliott waves predict that at any given time, when a major turn (and even some more minor turns) in a market is due, the more major it is, the more people think that the market is going in the other direction (in other words, Elliott wave theory predicts highs at times when the market is up and people are expecting it to go higher and lows when the market is down and people are expecting it to go lower). In other words, Elliott waves predict markets to go in directions when only a small minority of people are expecting that new direction. And that dynamic, that people are usually wrong at the major turning points, is why most people do not make money in the markets and also why wealth gets concentrated more and more as time goes on until the social unrest that is ultimately predicted by Elliott waves (during the big downturns) happens.
After the experience of the 1970's, which the baby-boomers who currently run the world experienced as young people, the baby boomers decided they never wanted to experience something like that again, so a law against recessions was passed (actually, more specifically, it is a law calling for full employment at low inflation). It was not enforced immediately after it was passed (in 1978) because right about that time, consumer price inflation really took off and so it was decided that that had to be dealt with first, and it was, with high interest rates and a recession (but a common myth is that Paul Volcker did the high interest rates; actually, they would have happened anyway, the Kondratieff wave predicts that, the central bank was just cooperating with it, and I deal with that in my model).
The high interest rates of the late 1970's/early 1980's brought on the transition from the stagnation phase of the current Kondratieff wave to the plateau phase - and so in the early 1980's, the economy started taking off again. It was not until then that enforcement of the law against recessions was possible, and not until the stock market crash of 1987 that doing so was regarded as needed, and even a good idea (in the context of the current moment). So that is when the law was first enforced - and attempts at it (mostly successful until the fall of 2008) have continued ever since.
One of the points of the effort (at least from the point of view of the average person, not so much from the point of view of the central bank, which was just trying to keep the economy going) was to try to eliminate the phenomenon that most people do not succeed at investing (in the long run) because they do the wrong moves at all the major turning points. The thought was that the way to eliminate the problem was to force the economy to go up all the time, thus having a context in which the stock market would be going up much of the time, as well. And that is how people have invested for the past 25 years and thought they were OK.
The problem is that this is simply impossible to keep going forever - and so when the system gets to the point where it is ready to go down no matter what, more people than ever end up (by the delay) being invested in the wrong direction and, in fact, expecting the direction they have been seeing all those years to continue, thereby resulting in a situation where the maximum number of people are invested to the maximum extent in the wrong direction when the turning point finally comes - thus resulting in major losses, which is exactly what we saw when the economy and stock market went down hard in the fall of 2008. (Note: People lost a lot of money in the early 2000's major stock market downturn, too - but the economy did not go down and so people maintained more confidence, which resulted in all the more fully investing in time for the stock market crash of fall 2008, thus the major losses at that time.)
Now, people are hoping that we are coming back up again - but since it is just (another) bear market bounce, and even a much smaller one than the previous one, a lot more people are going to get burned, and a lot more quickly this time. That is one of the reasons why I am predicting mass bankruptcies - because the amount of money that is actually available to people will go down dramatically, drastically, and so spending will go way down (in addition to the phenomenon of people being spooked by the renewed economic and stock market downturns and therefore cutting way back on spending on that basis alone, even if they still have money). That is why I am making the predictions that I am - but the more formal, model-based reason, and evidence, for my prediction is the combination of the Kondratieff wave, Elliott waves, and the law against recessions (a law which cannot be enforced forever), together with Austrian economics, which makes clear why the Kondratieff wave and Elliott waves work and why the law against recessions can't be enforced forever.
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