As noted last week, the Chicago Mercantile Exchange lifted margins on gold contracts by 22%. Higher margins mean that some investors will need higher cash positions, causing them to sell gold in order to comply with the new standard.
There are also some noticeable parallels to the silver market correction of last May and today’s gold situation, but even still I do not expect an overly brutal correction in gold. The worldwide physical demand is just too strong.
When we experience corrections, take a deep breath, close your eyes and see the big picture. Ultimately, inflation will be the problem as the increasing pain of debt deflation becomes clear. Bernanke knows that debt deflation will destroy our economy, if left unchecked.
But it is not just here, worldwide it now seems sound money be damned. The global race among the nations to accumulate gold is underway.
In this country, massive inflation will be the by-product of the ultimate dollar devaluation and a massive destruction of your wealth unless you have gold and silver.
The bottom line is that gold and silver will go higher, in response to a lower Dollar and the inflation which the Fed has little choice but to create.