Gold lower? Dollar higher? This is the old formula but is it a sound one? The dollar is higher compared to other fiat currencies, but continues to fall in terms of what it is able to buy, i.e. inflation. Therefore one would expect gold to rise not fall.

What I get out of the following commentary is that gold is the one item folks know they can trade with others to raise cash. In other words, gold is the king of cash.

Commentary By Jon Nadler today:

Traders were busy raising cash today. What to sell? Gold and oil fit the bill. Why raise cash? Why the malaise in equities? ...

If anything, the margin calls resulting from this massive stock market drop could engender further gold position liquidations from some of the players likely to receive such notices. The short-term direction in gold remains pointed to lower levels, and selling could intensify if $790 is breached this week. This is a correlation pattern which was first observed back in February of 2007 when a major slide in Asian equities gave rise to margin calls and resulted in liquidations in other, liquid assets.

While folks rush to sell gold to raise cash, gold price may slump temporarily. But once the cash is seen for what it is - inflationary paper with no future except as a quick trading vehicle, gold holders will no longer be so eager to sell unless the price is right.

We've got a Windfall coming. Hang on.

BK