Why Did Gold Drop in Price in 2008?

Seth M emails:

Hi Robert, 

 I've been following SLV and GDX because, like you, I think that prices should increase in tandem with increases in money supply/inflation.

Gold and silver dropped with the market as the fed cut rates aggressively in 2008. I think the increases in money supply/inflation support a bull thesis for SLV and GDX, but I'm trying to reconcile that thesis with what happened in 2008. Are there any particular reasons why you think it's different this time?

Thank you,
Seth

RW response:

I have written about this many times. It is a myth that gold generally climbs during a recession.

See:

The Myth That Gold Is a Great Performer During A Recession

Gold went up during the Great Depression only because FDR pushed the price up at the behest of Bernard Baruch and John Maynard Keynes.

See:

The Super Myth of Keynes as a Great Stock Market Investor

In 2008, the gold price did what it always does during the early stages of a recession, it fell. Because there is less money around to prop it up, which was the case as money supply growth collapsed after an early 2008 upward burst. (SEE: The Fed Flunks: My Speech at the New York Federal Reserve Bank)

Once Bernanke started printing money again late in 2008, within a month or two, gold started climbing again as the new money filtered through the economy.

I hasten to add that any specific cycle has its own unique charcteristics but the above is the general trend. For the more specific trends you have to watch things much more closely.