Tom Cullis here with the last installment on my discussion about "Free Gold".

Let's get to it.

Here's what could happen with the dollar and gold in the not-so-distant future.

To look forward, we must look back - to Weimar, Germany.

If central bankers do what the Reichsbank did during the early 1920s and they continue to look at inflation and interest rates for their cues as to what ails the markets and what should be done about it the dollar will be destroyed...

There are long stretches of time when stocks outperform commodities, and conversely, long stretches when commodities outperform stocks.

There’s also a tendency for world governments to spend beyond their means.

Right now, these two trends are occurring all at once. Commodities have outperformed stocks for at least a decade. World governments are actively devaluing their currencies as fast as they can.

Being a commodity investor today means that you have the wind at your back. Demand for real assets will not diminish, and at the same time, supplies of nearly ever commodity are dwindling. Central banks exacerbate the problem by throwing ever-greater amounts of money at these problems. It’s slowly but surely becoming a perfect storm.

And the only lifeboat that shows any signs of surviving is the 'SS' Commodity.

Mr. Cramer and I actually agree on gold's direction. But I want to emphasize the point: knowing why you're invested in a certain sector is at least as important as knowing which sector to invest in.

And it's my personal belief that Jim Cramer's over-the-top, made-for-TV investment analysis could be detrimental to someone who invests in gold on his advice.

His reasoning to buy gold now has almost nothing to do with gold's main trend. I'll quote Money News quoting him:

""Gold stocks peaked 30 days before gold peaked," Cramer said on CNBC, referring to gold's record high of $1,432.50 an ounce on Dec. 7.

"Now look at gold stocks going up, even though gold (itself) is doing nothing.""

Okay, I have several problems with Cramer's analysis.

The biggest one is that it's not...really true at all.

I should qualify the statement: if you are a homeowner, a taxpayer, a retiree, or someone with any savings, investments or dollar-denominated assets - you are the fall guy.

I’ll back up further: what are you taking the fall for?

Simple.

You’re already on the hook for bad mortgages on the books of banks like JP Morgan (NYSE: JPM), Bank of America (NYSE: BAC), and you’ve already backstopped General Motors (NYSE: GM) and Chrysler.

“But Kevin, I didn’t bail out those companies - the Government did.”

Well, Mr. Fall Guy, you know as well as I do that the Government doesn’t have any savings, so the money and resources that they have given and promised to give insolvent corporations didn’t come from some secret government rainy-day fund.

Before I can even pick up the phone, gold is bottoming out at $250 an ounce, a multi-decade low.

Without hesitation, I dial my precious metal vendor of choice, and have my wife call up the backup vendor.

I tell her, “Cash out all of the bonds we have, and buy as much gold as you can!”

I panic, as my gold vendor’s line is busy. I redial once, twice, ten times, trying to get a hold of anyone who will take my dollars in exchange for more physical gold.

While I dial, I think “why is gold tanking?” and then I take a step back and start searching for a valid reason. Did Federal Reserve Chairman Ben Bernanke announce some unthinkable deflationary policy? I don’t understand. How could gold fall so far, so fast?

Yesterday, the International Monetary Fund quietly announced that it had completed the sale of over 400 metric tonnes of gold to Central Banks and other giant institutions.

Thought it's one of the biggest single sales of gold in world history, it was largely ignored in the mainstream press.

Most remarkably, this record gold sale has had little effect on the price of gold futures.  

So far this year, the S&P 500 has dropped 3% or more in one session 3 different times. The two previous times, it clawed back some of the losses over the following week. We’ll have to wait and see of there is any upside after yesterday’s big drop.   

 

The S&P 500 is now testing the lows from the “flash crash” on May 6. This is interesting because it was assumed that trading that day was something of a fluke as computer trading programs went haywire. But now that stocks are back to those levels, we must consider that the drop may not have been a fluke.  

 

The question now is: can stocks find some strength? Or perhaps a better way to ask the question is: are the sellers done?