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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

April 16, 2013 at 9:46 AM

After the gold rush, a lesson in gravity

I wondered what wonders the Wall Street Boyz had been spinning that played a role in Monday’s gold sell-off, the worst drop in more than 30 years. Sure enough, “new financial instruments” tied to gold were an accelerant in the collapse just as they helped artificially boost gold’s price in recent years. Prominent among the “innovations” are gold exchange-traded funds. The so-called ETFs allow for quick gambling moves, er, “investing.” And they turned against the market with a vengeance. Sound familiar? How long before the fraud allegations come out?

Gold rebounded today, but investors learned a valuable lesson: What goes up can come down, too. Not that the lesson will take. Gold may have a place in some portfolios, but the bet that inflation would roar out of control hasn’t worked out. There are no perfect safe havens. It’s also worth adding that the downdraft was part of a broader decline of precious metals and many commodities linked to slower growth in China. That country was supposed to lead the world out of recession and slow growth — a role once held by the United States — but it hasn’t happened. And this is even if one believes Beijing’s data.

Today the International Monetary Fund lowered its forecast for growth in the world and the United States. Tellingly, oil prices are down, always a bellwether of slower growth ahead. The market is up this morning, but the real world is saying, “correction.”

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Oly loves Boeing

Tax breaks for Microsoft, too

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