One of the most impressive moves in the wake of the Fed?s Thursday move to maintain ultra low interest rates was to be found in gold.

In the run up to the flash headline on the Fed non-announcement, the yellow metal rocketed $40. The action was even more impressive in silver (SLV), which tacked on 90 cents, or 6.6%.

Now, here is the really bad new.

The fundamentals for the barbarous relic are about to turn from bad to worse. The prospect is sending perma bulls rushing to update their life insurance policies.

This is the dilemma. To sell, or not to sell?

Gold does well when interest rates are low or falling. That reduces the opportunity cost of owning the barbarous relic, which doesn?t pay any interest or dividends. It just sits there, shines, and collects dust.

It also runs up storage and insurance fees, effectively hampering it with a real negative yield.

So what happens when the fundamentals flip from good to bad?

WARNING: if you have been carefully salting away one ounce American gold eagle coins in your safe deposit box for the past several years, you are not going to want to read this.

If I am right, and we have put in a generational high in bond prices and a low in yields, interest rates are going to rise. Initially, for the first couple of years, they may not do it a lot. But eventually they will.

That is terrible news for gold owners.

The market clearly thinks this is happening. Take a look at the charts below. Gold is making its third run at support at $1,100 over the past 18 months. Break this and cascading, stop loss selling will ensue, taking gold down to $1,000.

That, by the way, is my jeweler?s downside.

Caution: My jeweler is always right. There he plans to load the boat with bullion, which his business consumes in creating baubles for clients, like me.

It wasn?t supposed to be like this, as the arguments in favor of buying the yellow metal were so clear five years ago.

The exploding national debt was about to force the US government to default on its debt. It almost did, thanks to congressional gamesmanship.

Massive trade deficits with China and the Middle East were supposed to collapse the value of the US dollar.

The election of Barack Obama was predicted to lead to the creation of a socialist paradise. We were all going to need gold coins to bribe the border guards in order to get out of the country with only what we could carry.

The problem is that none of this happened.

The US budget deficit is falling at the fastest rate in history, from a $1.5 trillion peak to as low as $400 billion this year. Foreign capital pouring into the US has pushed the greenback to multiyear highs, and loftier altitudes beckon.

Since the 2009 inauguration, the S&P 500 has tripled off its intraday low. This has enriched the 1% more than any other group, who have seen their wealth increase at the fastest pace on record.

The trade deficit with China is now balancing out with America?s own burgeoning surpluses in services and education. As for the Middle East, we make our own oil now, thanks to fracking, so why bother.

To see such dismal price action in the barbarous relic now is particularly disturbing. Traditionally, the Indian ?Diwali? gift giving season heralded the beginning of a multi month bull run in gold. It ain?t happening.

In fact the dumping of speculative long positions by long-term traders used to this is accelerating the melt down. That?s because gold, silver, or any other inflation hedges have no place in a deflationary, reach for yield world.

Mind you, I don?t think gold is going down forever.

Eventually, emerging central banks will bid it back up, as they have to buy an enormous amount just to bring their reserve ownership up to western levels. Inflation is likely to return in the 2020?s, as my ?Golden Age? scenario picks up speed.

In the meantime, you might want to give those gold eagles to your grand kids. By the time they go to college, they might be worth something.

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Better to Look than to Buy

After a prolonged, four year hibernation, it appears that the gold bulls are at long last back.

Long considered nut cases, crackpots and the wearers of tin hats, lovers of the barbarous relic have just enjoyed the first decent trading month in a very long time.

The question for the rest of us is whether there is something real and sustainable going on here, or whether the current rally will end with yet another whimper, to be sold into.

To find the answer, you?ll have to read until the end of this story.

Let me recite all the reasons that perma bulls used to buy the yellow metal.

1) Obama is a socialist and is going to nationalize everything in sight, prompting a massive flight of capital that will send the US dollar crashing.

2) Hyperinflation is imminent and the return of ruinous double digit price hikes will send investors fleeing into the precious metals and other hard assets, the last true store of value.

3) The Federal Reserve?s aggressive monetary expansion through quantitative easing will destroy the economy and the dollar, triggering an endless bid for gold, the only true currency.

4) To protect a collapsing greenback, the Fed will ratchet up interest rates, causing foreigners to dump the half of our national debt they own, causing the bond market to crash.

5) Taxes will skyrocket to pay for the new entitlement state, the government?s budget deficit will explode, and burying a sack of gold coins in your backyard is the only safe way to protect your assets.

6) A wholesale flight out of paper assets of all kind will cause the stock market to crash. Remember those Dow 3,000 forecasts?

7) Misguided government policies and oppressive regulation will bring the Armageddon, and you will need gold coins to bribe the border guards to get out of the country. You can also sew them into the lining of your jacket to start a new life abroad, presumably under an assumed name.

Needless to say, it didn?t exactly pan out that way. The end-of-the-world scenarios that one regularly heard at Money Shows, Hard Asset Conferences, and other dubious sources of investment advice all proved to be so much bunk.

I know, because I was a regular speaker on this circuit. I alone, a voice in the darkness, begged people to buy stocks at the beginning of the greatest bull markets of all time, which was then, only just getting started.

Eventually, I ruffled too many feathers with my politically incorrect views, and they stopped inviting me back. I think it was my call that rare earths (REMX) were a bubble that was going to collapse was the weighty stick that finally broke the camel?s back.

So, here we are, five years later. The Dow Average has gone from 7,000 to 18,000. The dollar has blasted through to a 12 year high against the Euro (FXE). The deficit has fallen by 75%. Gold has plummeted from $1,920 to $1,100. And no one has apologized to me, telling me that I was right all along, despite the fact that I am from California.

Welcome to the investment business.

Except that now, gold is worth another look. It has rallied a robust $200 off the bottom in a mere two months. Some of the most frenetic action was seen in the gold miners (GDX), where shares soared by as much as 50%. Even mainstay Barrick Gold (ABX) managed a 30% revival.

The gold bulls are now looking for their last clean shirt, sending suits out to the dry cleaners, and polishing their shoes for the first time in ages, about to hit the road to deliver almost forgotten sales pitches once again.

The news flow has certainly been gold friendly in recent weeks. Technical analysts were the first to raise the clarion call, noting that a string of bad news failed to push gold to new lows. Charts started putting in the rounding, triple bottoms that these folks love to see.

The New Year stampede into bonds gave it another healthy push. One of the long time arguments against the barbarous relic is that it pays no yield or dividend, and therefore has an opportunity cost.

Well guess what? With ten year paper now paying a scant 0.40% in Germany, 0.19% in Japan, and an eye popping -0.04% in Switzerland, nothing else pays a yield anymore either. That means the opportunity cost of owning precious metals has disappeared.

Then a genuine black swan appeared out of nowhere, improving gold?s prospects. The Swiss National Bank?s doffing of its cap against the Euro (FXE) ignited an instant 20% revaluation of the Swiss franc (FXF).

In addition to wiping out a number of hedge funds and foreign exchange brokers around the world, they shattered confidence in the central bank. And if you can?t hide in the Swiss franc, where can you?

This all accounts for the $200 move we have just witnessed.

So now what?

From here, the picture gets a little murky.

Certainly, none of the traditional arguments in favor of gold ownership are anywhere to be seen. There is no inflation. In fact, deflation is accelerating.

The dollar seems destined to get stronger, not weaker. There is no capital flight from the US taking place. Rather, foreigners are throwing money at the US with both hands, escaping their own collapsing economies and currencies.

And once global bond markets top out, which has to be soon, the opportunity cost of gold ownership returns with a vengeance. You would think that with bond yields near zero we are close to the bottom, but I have been wrong on this so far.

All of which adds up to the likelihood that the present gold rally is getting long in the tooth, and probably only has another $50-$100 to go, from which it will return to the dustbin of history, and possibly new lows.

I am not a perma bear on gold. There is no need to dig up your remaining coins and dump them on the market, especially now that the IRS has a mandatory withholding tax on all gold sales. I do believe that when inflation returns in the 2020?s, the bull market for gold will return for real.

You can expect newly enriched emerging market central banks to raise their gold ownership to western levels, a goal that will require them to buy thousands of tons on the open market.

Gold still earns a permanent bid in countries with untradeable currencies, weak banks, and acquisitive governments, like China and India, still the world?s largest buyers.

Remember, too, that they are not making gold anymore, and that all of the world?s easily accessible deposits have already been mined. The breakeven cost of opening new mines is thought to be around $1,400 an ounce, so don?t expect any new sources of supply anytime soon.

These are the factors which I think will take gold to the $3,000 handle by the end of the 2020?s, which means there is quite an attractive annualized return to be had jumping in at these levels. Clearly, that?s what many of today?s institutional buyers are thinking.

Sure, you could hold back and try to buy the next bottom. Oh, really? How good were you at calling the last low, and the one before that?

Certainly, incrementally scaling in around this neighborhood makes imminent sense for those with a long-term horizon, deep pockets and a big backyard.

Oops!