Quite frankly, until traders become convinced that some sort of policy move by Central Bank Planners which will stem the downward economic spiral is forthcoming, they are not going to buy. It will be up to the big physical market buyers, mainly the Asian Central Banks, who are valued based buyers, to put a floor under the gold market.
Many keep pointing to the amount of money that has already been injected into the system in expectation that inflation issues are mere moments away. Unfortunately, if that were the case, we would already be seeing soaring commodity prices and of course a soaring gold price. The problem is that the rate at which this money is turning over or changing hands in the economy, the VELOCITY OF MONEY, continues to plummet.
Notice the following chart detailing the VELOCITY OF MONEY. I have charted the simplest measure of money supply (M1) as well as the more complex measure (MZM). No matter which one we take, VELOCITY is trending lower. What this means is that while the Fed has been busy injecting liquidity into the system, it really is not going anywhere (besides into the US equity markets by the Big Banks). The result is that while the FUEL FOR INFLATION is in place, the WIND TO FAN THE FLAMES is currently missing. People and business are simply not spending money at a fast enough pace to fan the fires of inflation.
Gold continued to rally higher even despite the fact that the graph turned lower as traders still believed that the total sum of near $2.5 TRILLION in combined QE would set the stage for soaring inflationary issues. Commodity prices roared higher and the US Dollar sank lower. After all, we were talking about an unprecedented amount of money creation. Alas, it was all to no avail as the issues with the enormous amounts of indebtedness swallowed it all up with woes out of Europe further complicating issues.