Gold drops, but is that a surprise?

Not really…

Look at history. Prices do not continuously rise indefinitely. There are ups and downs not only through the trading day but over days and weeks as well.

As of this writing, the last New York spot market bid was just over $1150 down from a start of over $1200 this morning.

Part of the decline could be attributed to people taking profit on their investments. However, some analysts claim the rally of the dollar on the news that job loss was not as large as expected is “kicking the teeth” of the gold investing. [See the top stories about commodities for the full commentary.]

Now, what time of year is it? The holiday season. What happens during the holiday season? Extra jobs are created to address the increased customer demand.

Though the government report does warn that their numbers include a lot of temporary jobs, they do not provide the statistics of total jobs lost, temporary jobs gained and the difference between the pay scales of lost jobs to the temporary jobs.

Don’t misunderstand. It’s good to have people in jobs even if they are only temporary. It’s also good to have the dollar gain strength against the other currencies. But, the picture is not quite as rosy as all of the hoopla makes it seem.

What happens after the holiday shopping season? Will there be more job losses in late December and January? Sure there will. The temporary jobs will disappear. But what about other, more permanent jobs? That remains to be seen, but skepticism abounds that job losses will continue their rapid rates.

“Hope for the best and prepare for the worst” seems to be the best course of action these days.

On a similar note, this commentary by one of Kitco’s contributors projects both positives and negatives for the world economy in 2010.

On the negative side at mid-year, he states:

(1) $40-$50 billion in U.S. credit card failures 

(2) Housing sales, both new and used, for the first half of 2010 fail badly with the addition of 7-10 million new mortgage defaults mostly in prime loans caused by job losses

(3) First half auto sales will be so poor more car-makers file bankruptcy

(4) Commercial real estate loans bankrupt many developers and end both their current and planned projects putting more people out of work

 (5) Insurance companies hold so much failing commercial real estate paper that they are in danger of defaulting and some will turn to government bailouts.

Will these situations happen? Based on the current economic climate, they are certainly believable.

Some of his other commentary makes one think as well. He especially reminds us of how interwoven the world economy has become. He discusses how Americans have slowed their consumerism which has decreased the Chinese exports by 25%. This also shut hundreds of their factories and idled many (millions) of their workers.

His article is long, but it provides much food for thought about what could happen in 2010. He takes a broader view that is not frequently discussed in mainstream economic news.

Is he right, or is this “chicken little yelling ‘the sky is falling?'”

Most crystal balls predicting the future are cloudy at best and opaque at worst, but he introduces several points worth considering.

In the meantime, the pull back on gold can be scary, but the overall economy hasn’t made a big recovery yet.

With the overall economy unstable, gold continues to be a good value.