To Understand Gold, Look Across the Ocean

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Matthew Drudge reports today that panic is everywhere in the world of gold bugs. And sure enough, after drifting downward from $1,800 to $1,550 over the past six months, gold has plummeted another $200 over the past two days. Paul Krugman feels vindicated:

As Joe Weisenthal says, this should be seen as really good news, because it offers strong evidence that the goldbug/inflationista view of the world — which says that we need to stop all efforts at monetary and fiscal stimulus lest we turn into Weimar — is, in fact, all wrong.

I don’t follow the gold market at all, but the interesting aspect of this to me is: what about China and India? My hazy understanding of the rise in gold prices over the past decade has been that increased demand in those two countries was a far more important factor than speculative fever among tea party types in the U.S. So if the price has dropped by a quarter over the past half year, it must have something to do with decreased demand in China and India. And sure enough, when I click on today’s story about gold in the Wall Street Journal, here’s what it tells me:

Worries are spreading that Asian buying, which has helped prop up gold prices for years, may slow. China reported that its economy unexpectedly slowed last quarter, spurring fears that Chinese consumers, faced with less cash, could stop purchases. In India, the largest gold industry group warned that the country is losing confidence in the metal because of its recent slide. Investors in Europe cashed out of gold en masse amid concerns that U.S. stimulus may come to an end earlier than expected, and following news that Cyprus may sell a chunk of its gold reserves to fund part of its bailout package.

It’s still not clear exactly what’s going on. If this report is right, there are merely fears that Chinese consumers “could” reduce their gold buying, and Indian purchasers are said to be reacting to gold’s recent slide, not causing it.

Still, I think that somehow China and India ought to be the focus of explanations about gold’s slide. Obviously, a bubble mentality can take over once a price drop has continued for a while, but the original source needs to be reduced demand. And that points to the other side of the Pacific Ocean.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

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Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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