That's all, folks. One look at the headlines will tell you the gold bull market is officially over: The stock market is booming, a modest recovery of the U.S. economy is underway, and the dollar is dominating the forex. Time to sell your bullion and get back into U.S. stocks!
Does anyone really believe this story at this point? Haven't we been through this time and again since 2008? Remember "green shoots?"
The sad truth is that American investors, accustomed to a world of rising stock and housing prices for several generations, are experiencing short-term memory loss. It's as if their longing for the "good old days" has made them subconsciously suppress any unpleasant memories.
The Return of Irrational Exuberance
But it wasn't so long ago that irrational exuberance over the housing market had seized investors' logic, and the same thing is happening to U.S. stocks right now. Fair-weather investors are abandoning gold equities and jumping into the U.S. market in the hopes of making an easy buck, just as people bought property near the housing peak hoping to flip it before those adjustable-rate mortgages reset. This is a game of chicken that makes big banks rich while destroying the savings of average investors.
So-called experts are pointing to the buoyancy of U.S. stocks and weakness of the precious metals as proof of their viewpoint — but the fundamentals of the economy are still dismal. Unemployment remains persistently high and manufacturing continues to struggle. In April, the Fed reported that industrial production shrank 0.5%.
The only growing part of the economy is consumption and services. Indeed, U.S. consumer confidence just hit a five-year high! But this week's revisions to first-quarter GDP revealed that the household savings rate fell to an abysmal 2.3% and real disposable income plunged by an annualized rate of 8.4%. It seems that both rising asset prices and consumer confidence are based solely on the expectation of an improving economy that is still unsupported by the data itself.
The Currency War Heats Up
Perhaps people think things are different this time because of the news from the fronts of the international currency war. Everywhere you look, once-strong economies have begun to vie for exports by devaluing their currencies.
Switzerland had one of the strongest European economies before its central bank capped the value of the franc against the euro in 2011, vastly diminishing its citizens' purchasing power. The Japanese yen, once the most stable currency in Asia, is falling victim to even more grotesque devaluation policies. Out of irrational fear that their exports will not be able to compete with the yen, Australia and New Zealand are the latest to jump into the fray by cutting interest rates.