The short and ugly truth is that when a market isn’t going up, then it’s headed south. If a market seems unsure of itself, then you can count on gravity to drag it down. Dresdner Kleinwort Wasserstein analyst Kevin Crisp hit the nail on the head in speaking of the overbought gold market action today: “Speculators are starting to investigate if not congregate around the exits.”

And no wonder, with the most recent reports showing funds long some 85,000 gold contracts (85 million ounces), a level of speculative commitment that exceeded even the February high of 66,000 contracts reached when gold was pushing towards the $390 level. All it took was a little bit of strength in the dollar over the past few days to show gold’s present vulnerability. Jim Steel, director of research at Refco LLC New York, noted that "The Commitments of Traders Report confirmed that the funds in the market were well overbought, and the recent bounce and stability in the dollar gave the funds the chance to take profits."

Dramatic action? You bet! But stuff happens, even in a market in which the fundamentals are in place for a multi-year move that may take us to gold prices that, in dollar terms, are an order of magnitude higher than anything we’ve ever seen before.

The fact is, measuring gold prices in the ever-weakening monetary units that we nostalgically refer to as the “U. S. dollar” may soon become an exercise in near-futility as the Fed and the Treasury follow the only course possible to reconcile increasing federal spending commitments with shrinking tax revenues: massive inflation to ‘inflate away’ the real value of the deficit.

That is and has always been a government’s prerogative with fiat currency – the ability to promise countless dollars to be paid in the future (Social Security, government pensions, bonds, treasury bills, etc.) and then back up that promise by printing those dollars like there’s no tomorrow.

The net effect? Someday we may all be millionaires, but we won’t get much change back when we pay for lunch at McDonald’s with a hundred dollar bill.

We were thinking of future inflation this week when we read of the acceptance by the International Olympic Committee of NBC’s bid of US$2.201 billion to broadcast the 2010 Winter and 2012 Summer Olympic Games. At first that seems like a lot of money - but what will the dollar be worth by then?

By beating out Fox and ABC in the bidding for the Olympic rights, in essence, NBC has locked in the cost of those broadcasting rights in dollar terms. It seems that the IOC doesn’t even have the protection of an inflation clause, or, better still, a gold clause, to protect the value of what it will receive seven and nine years from now.

NBC’s primary expertise is in sports programming, advertising revenues, sponsorship arrangements, and all the know-how involved in making a financial success of broadcasting the Olympics.

But they’ve also shorted the dollar big-time with this deal, and by 2010 that may look like an act of genius.