Here’s a really interesting article. You can read it yourself and judge how accurate it is.
Did The US Treasury Manipulate The Gold Price Down?

Here’s some interesting parts of it…

On May 11, 2006, the gold price hit a 26 year high of US$719.75/oz. This represented a 50% increase from only November.
Clearly gold had reached a point of being overstretched, driven as it was by many factors including a newfound popularity amongst novice investors. A lot of this was put down to the recent availability of listed gold trading instruments. No one was particularly surprised that a correction occurred.

They were, however, somewhat taken aback by the sheer ferocity of the correction. Gold dropped 22% in five weeks. Heller noticed that, profit-taking aside, there was no change in the fundamentals that suggested gold should be in a long term boom market.

Those fundamentals have been well documented: the US deficit problem, increasing money supply, falling housing market and teetering economy; slowing growth in foreign investment in US dollar assets, and the potential switch to gold reserves; global geopolitical tension; global inflation.

In this climate the gold price collapsed. While there was a certain amount of stimulus from the world’s largest paper gold market – Comex – in altering trading limitations and margin requirements, observers were also puzzled by a large influx of physical gold onto the market.

The amount of gold sold during this period appears to be in the order of 14 million ounces. Heller notes that no party has come forth to claim such significant sales. The reality is, however, that there are very few sources that could actually hold that amount of gold. (If you took, say, an average price of US$625/oz that would equate to US$8.75 billion.)

Undeterred by the anonymity, Heller suggested the seller could be narrowed down by considering who may have been the biggest beneficiary of the sale. That, he decided, was the US Treasury. The US dollar strengthened as the gold price fell. The US Treasury is one of few contenders who would have that much gold.
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The Fed is currently stuck between a rock and a hard place. It has raised interest rates 17 times in order to curb inflation and support the US dollar in the face of deficit fears. If it continues to raise rates it runs the risk of tipping the US economy, already under pressure, into recession. If it stops raising rates then US inflation could run hard (and the oil price does not look like falling any time soon). Either way there must be downward pressure on the US dollar.

If there is downward pressure on the US dollar then the gold price will rise (barring manipulation).

As I mentioned in a previous post about Exxon being the new whipping boy, I’m trying to find out whether the US economy is more likely to head into an inflationary period or slip into recession.

Based on several sources, I feel we will see inflation. According to Financial Sense,

the U.S. is headed for another recession. Given the under-reporting of inflation, which overstates GDP, we may already be entering one. The only difference between the two camps is how it unfolds. As the U.S. enters into recession, tax revenues will decline and government spending will increase as a result of rising entitlements. Deficits will get bigger and the U.S. will have to borrow and monetize more of its debt. War, entitlements, and lack of fiscal restraint means more debt, more borrowing and debt monetization. Eventually the dollar is going to collapse through the weight of the twin deficits. Inflation—not deflation—will be the result. Our debts will only get larger. They will have to be inflated away. Our situation is beyond salvaging as Volcker did back in 1979-1987. It is now inflate or die. Eventually the debt will be paid or expunged, but it will not be through payment or default. Instead, as The Bank Credit Analyst stated in its July, 2003 issue, “The only way to avoid a destructive end to the super-cycle of rising debt and illiquidity may be to try and devalue accumulated debts through increased inflation.

Next year the new Medicare prescription benefit kicks in. In subsequent years the first batch of baby boomers will begin to draw on Social Security. Each year entitlements like Social Security and Medicare rise and then escalate as the retirement population expands. The War on Terror and Iraq War will cost even more money in the years ahead. Declining U.S. oil and natural gas production as well as increasing global energy demand will mean higher energy prices and bigger trade deficits. That will translate into a lower dollar. Today’s U.S. is not the same U.S. of the 1930s. We are no longer self-sufficient in manufacturing, capital or energy. The savings rate in the U.S. is now negative. The 1930s was a different time. We were a different country. We were morally different than what we are today. In summary a different time and a different country mean a different outcome. Inflation— not deflation—is inevitable.

As of this writing the global monetary base has expanded by 20% over the last two years, the highest rate of expansion since 1975. The monetary aggregates are expanding again, with an increase of $30 billion in one week and $42 billion in the most recent report. Recent money growth is approaching 12.5% annualized. Contrary to popular opinion, money is not tight, but loosening. As shown in the previous graphs of the 1970s, high interest rates do not stop inflation. The only thing that can stop inflation is the limitation of new money and credit. Does anybody really believe that American voters will tolerate a recession before calling on government to end it? There are already calls for price controls on oil, natural gas, and gasoline. Got gold, silver or oil?

Also of note, was this post on the Big Picture.

“We get the distinct impression that consensus thought right here is that “inflation is a lagging indicator.”

Funny thing about this sentiment info is that the people who’re telling us that “inflation is a lagging indicator” are the same people who’ve told us all along that “there’s no inflation,” the same people who said gold couldn’t rally, the same people who said oil wasn’t going to stay at high levels, and the same people who said tech would be a leader, the same people who said the “Fed’s done raising rates” for a year, and the same people who said the Yanks were out of the race.

Plainly, these people are dangerous and we think inflation will work higher.”

So whats the best way to hedge yourself against inflation? Invest in Gold, Silver, Oil wells, foreign currencies & mining stocks.

Incidentally, the WSJ reported today that inflation is up [only] 2.5% on an annual rate, the highest in 11 years.[yeah right!] The dollar slid, stocks were down and gold and oil were up.

I feel like a broken record. I’ve grown hoarse trying to get people to invest in Gold.

Anyway if you haven’t buy some already, now may not be the best time to jump in. You might want to wait for a pull back. Of course, which way it’ll go from here is anyones guess.

However Gold still remains below a high of $850 on the cash market, a London fix price, set on Jan. 21, 1980. On that date, futures hit an intraday high of $875 before settling at $825.50. Adjusted for inflation, gold would need to trade to $2,200 to match those highs. [source: WSJ.com]

Gold finally hit $600 an ounce! Last week I was lamenting how I should’ve bought more, but atleast I bought something. Although its not enough to make me rich, every little bit helps!

But its does bring up a good point. Rather than spend 1% of your net invested assets in a 100 different things, its better to focus your investments into 3 or 4 main categories. That way your focus isn’t diffused among too many different things and when one of the investments does well, its reflected immediately in your portfolio.
I had such a strong feeling about gold, I should definitely have bought more. I had thought about playing the credit-card 0% balance transfer game and buying gold, but I thought the strategy was inherently too risky in principle to implement [even though I was very confident I wouldn’t lose money].

Ever since I suggested buying gold and silver they’ve both appreciated over 15%. They’re both in the initial stages of a bull market and will continue to climb over the next few years. They are great hedges against inflation and also the devaluing dollar.

I guess I should have bought more!