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Weldon's Mini-Metal Monitor: Gold is Sweden and Malaysia!


I love gold!

The Swedish Risksbank moved to raise their key short-term interest rate this morning, taking it 'off' its historic low of 1.5%, lifting it to 1.75% and signaling that today's increases were likely the first in a series of monetary maneuvers. Subsequently short-term yields rose, the strip steepened to imply even higher rates in the mid-term, and the FX swaps narrowed dramatically, which in turn provided support for the SEK against both the EUR and USD.

However, the Swedish Yield Curve FLATTENED, as the rate hike came in the face of a deluge of macro-eco data over the past week, which CLEARLY suggested that 'stagflation' is becoming more pronounced amid a STEEP RISE in unemployment AND a jump in the yr-yr inflation rate.

In order to 'squelch' the push in prices, the Riksbank is suggesting that they are willing to 'give up' some growth reflation. The latter seems a near certainty in an environment of rising short-rates and an appreciating currency, a problematic combination given that domestic consumption has taken over as the dominant positive contributor to GDP growth, replacing the export sector, which continues to CONTRACT on a relative basis.

And thus we come to OUR point – gold. Gold in SEK to be more precise, as we note that DESPITE a stronger currency AND higher nominal short-term interest rates, Krona-Gold is making a NEW ALL-TIME HIGH today, as noted in the mega-macro-monthly chart on display below.

Simply, the intensified debasement of paper currencies is CLEARLY evident in the chart seen on the previous page, which reveal a CONTINUING secular bull market in the 'value' of Gold relative to the SEK, with Krona-Gold at a new all-time monthly closing high, and, as noted below, we see the SAME thing in Ringgit Gold, which also sits at a new all-time monthly closing high this morning, amid the decision by Bank Negara to leave rates unchanged.

We remain bullish on bullion from a secular macro-monetary perspective.
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Position in Gold
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