Gold's Reaction to the Bust

Gold, like every asset in the world, experienced positive gains as a result of the huge amount of liquidity thrown into the economy. And just like all those assets tumbled, gold tumbled with it, as some of that liquidity was ripped from the market.

So what's the difference? First off, I feel it is important to share with you that I have never been invested through an experience like this. This is a first for me, and all I can do is look at historical data and analyze to the best of my ability. Back to the question. What a situation like this tells investors, is that their "paper" investments are vulnerable. This dumping of the markets has even the talking heads on CNBC discussing about the huge amount of liquidity in the market today. This is a topic that they generally tend to avoid, but the average person is starting to get a glimpse of what is going on in the international markets today.

As more and more of these people realize this, they will start to designate a portion of their investments into precious metals as a safe guard from their own governments and central banks.

The problem is that gold is a little different. It is a very volatile market that reacts strongly to resistance and support points. A break out through a major resistance can result in a 10% jump and a break down through a major support can mean a a 10-15% drop. It is very important to remember that this only short term. No matter what happens in the next 6 months or year, gold is still on an overall bull market, and the last leg is always the strongest.

I say this because as assets prices continue to decline it pulls gold near a major support line. Is it different because of the grotesque market conditions? Maybe, maybe not. I honestly don't know and I don't even feel comfortable guessing. This is new to me. What I do know, is that this is an awesome learning opportunity. To me, it is amazing to see how the world markets are tied together today. We have seen declines around the globe in all markets. The only things to come out up after yesterday's trading were the Yen, Swiss Franc, and U.S. bonds. Also watch the carry trade as the yen becomes stronger. It will do nothing but continue to remove liquidity from the market as the carry trade becomes more risky and less profitable. The most important thing that I would like to share with you, is that if gold does retract sharply this will be a MAJOR buying opportunity. It will be a gift to those investors who wished they had a little more time to scrape up some more money (like myself) before the final leg of the gold bull takes off