Lear Capital: Are Gold Prices Forecasting a Double Dip?

By @ibtimes on

DaveThis morning, news broke that housing prices, according to the S&P/Case Shiller composite index,  finished the year 2010, down 2.4%.  That number was not far off expectations, however, numbers for 4Q 2010 are bringing to the fore, renewed concerns over a double dip.  As compared to 4Q 2009, home prices slipped 4.1% lower.

Since the outbreak of our credit crisis, home prices were said to have bottomed, then began to rise and now they are falling again. 

Robert Shiller, the Yale University professor who helps formulate the study, when asked by his interviewer this morning whether we are in a double dip, could not quite come to make such an admission.  Rather, he explained that there may never really a recovery to begin with.  It may have appeared to be a recovery but the truth was masked by first time home buyer incentives that were part of stimulus efforts.  Now, the stimulus is wearing off like an economic pain killer. 

All of this comes amid reports that consumer confidence is at a 3-year high.  Now the question.  Is the economy, overall, following the same path as housing?  Once stimulus wears off, will we see more evidence of a double dip - or as better described by Robert Shiller, never a recovery to begin with?

Generally, gold prices are the thermometer that measures angst in the economy and the markets.  As uncertainty rises, so does the gold price.  Prior to 3 weeks ago, the gold price had been falling nearly every day for 30 days.  Then it did an about face and started to rise, confusing the experts who said gold was in a correction and headed down as far as $1225 an ounce.

Reaching a low for the year around $1310 an ounce, gold is up 7.5% in just 3 weeks time.  Today, our markets awoke to yesterday's surprise $20 rise in the gold price.  In true domestic form, traders jumped at the chance to take profit.  Early, gold prices fell to $1393 an ounce.  Presently, they have regained upward momentum and have risen above $1400 once again.  

Perhaps traders are realizing gold knows something we don't.  If housing numbers are an indicator of what happens when stimulus wears off, and gold saw it coming, perhaps gold can serve as the indicator of things to come as other economic stimuli wear off.      

 

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