Conditions Ripe But Gold Inert

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"...for everyone coming in, there's somebody going out who needs to liquidate to raise money for other things," said Peter Grandich, editor of the Grandich Letter and one of the most bearish commentators on the U. S. economy.

This is just the scenario that the gold bugs anticipated. But the commodity is not playing along.

For many years, gold's biggest boosters have warned that mounting debt and sketchy lending practices would bring ruin to the U. S. financial system and leave gold as the much-needed safe haven.

The thesis ended up being exactly right. So why is gold in a downward trend and holding below US$800 an ounce as the U. S. banking system unravels?

According to the gold bugs, hedge fund selling and central bank intervention have put a temporary lid on the commodity. But the recent financial upheaval has made them only more bullish in the long term. On the surface, they point out that all the factors seem to be in gold's favour: market turmoil, a shortage of gold coins and other fabricated products, and soaring costs for mining companies that make it tough for them to make money at these prices...

"The financial meltdown has brought some people into gold as a safe haven. But for everyone coming in, there's somebody going out who needs to liquidate to raise money for other things," said Peter Grandich, editor of the Grandich Letter and one of the most bearish commentators on the U. S. economy.

He said he is unconcerned about gold's current weakness, because the soaring physical demand for the commodity indicates the paper price will eventually catch up...

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