As you can see, the price of gold is more than $500 an ounce below the fall 2011 peak.

Last month's gold selloff looks like a selling price and volume climax. That first day of the mid-April collapse was a near 5 standard deviation move lower (or every 4,700 years) on huge notional volume of $20 billion. On the following Monday, gold took an even greater beating. Over the two-day period, there was a 8 standard deviation event, which occurs statistically about every billion years.

Negative sentiment extreme. The sharp price drop in gold has brought on a growing short position.

With it lies the seeds for a potential short squeeze or perhaps some latent demand from short sellers.

The growing consensus view of an acceleration in the rate of global economic growth may be too optimistic. As such, not only might the recent rise in real interest rates be nearly over (as it holds the seeds for detracting from growth) but it raises the prospects for more QE, lasting much longer than many market participants expect.

The U.S. dollar's recent strength might peter out. A higher U.S. dollar is typically seen as a gold negative. But the recent strength, reflecting a growing consensus of Fed tapering, might be short circuited if global growth moderates.

More currency debasing lies ahead. The currencies of all the major countries, including ours, are under severe pressure because of massive government deficits. The more money that is pumped into these economies (the printing of money, basically), the less valuable the currencies become and more valuable gold is.

Inflation is gold's friend. The world's debt load cannot be paid back in constant dollars. Reflating (and inflation) seem inevitable (though inflation may lie out into the distant future) and is the natural outgrowth of monetary policy.

Tail risks remain. I don't subscribe to the notion that all economic tail risks have been eliminated nor that the shoulders of growth will be borne by monetary policy. Rather I view an upcoming "aha moment," in which it becomes recognized that easing is losing its impact as the Fed is pushing on a string. Again, QE might be with us for a lot longer than many anticipate.

Demand for physical gold is rising. It is interesting to note that when the price of gold had its two-day crash in mid-April, the price for physical delivery (gold coins, etc.) held better (the premium increased) than future prices. (View about 33 minutes, 50 seconds into this presentation by Grant Williams.)

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