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Gold Is Entering Its Liquidation Phase

Stocks in this article: GLD GDX GDXJ NEM ABX GG

8. Strong U.S. dollar. Whether you believe the U.S. economy will accelerate or slow, one thing is virtually certain: The U.S. economy, in relative terms, will be stronger than that of virtually all other developed nations. This means the U.S. dollar will tend to strengthen relative to virtually all major currencies, including the euro and yen. This is clearly a major negative for gold prices.

Conclusion

The only real hope for gold prices would be a massive economic collapse in Europe or the U.S. coupled with hyperinflationary monetary policy. Such a scenario is unlikely to manifest in the next 12 months. To the contrary, the global macroeconomic picture is likely to remain mired between slow growth and mild recession in most developed nations, with a concomitant tendency toward disinflation. This is the worst of all worlds for gold: not enough crisis intensity to trigger a flight to gold as a safe haven; not enough growth intensity to trigger inflation.

In sum, if you have not sold your gold and gold stocks already, sell now while prices are still absurdly high. The secular bull market in gold may not necessarily be over; however, the current cyclical bear market in gold still has another major leg down to go.

The writer holds no securities mentioned in the article.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

James Kostohryz has accumulated over 20 years of experience investing and trading virtually every asset class across the globe.

Kostohryz started his investment career as an analyst at one of the U.S.'s largest asset management firms covering sectors as diverse as emerging markets, banking, energy, construction, real estate, metals and mining. Later, he became Chief Global Strategist and Head of International investments for a major investment bank. Kostohryz currently manages his own investment firm, specializing in proprietary trading and institutional portfolio management advisory.

Born in Mexico, Kostohryz grew up between south Texas and Colombia, has lived and worked in nine different countries, and has traveled extensively in more than 50 others. Kostohryz actively pursues various intellectual interests and is currently writing a book on the impact of culture on economic development. He is a former NCAA and world-class decathlete and has stayed active in a variety of sports.

Kostohryz graduated with honors from both Stanford University and Harvard Law School.

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