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The Fix is IN


Gold is the antithesis of the fiat currency and therefore the enemy of the financial system as it exists today. Significantly higher gold prices would signal a failure of the world's central banks' attempts, especially that of the U.S., to reflate the economies of the world without rampant inflation. Gold prices also rise, which is well misunderstood in general, in periods of deflation as the demand for cash (or its substitute) increases and that of financial assets decreases. Deduction leads to the conclusion that the last thing the central banks want to see is a break away gold price.

The Federal Reserve several meetings ago when the stock market and the economy were faltering admitted in its minutes that it would consider "extraordinary and unconventional" methods of injecting liquidity into the system. Some of us interepreted this to be code for "get the market up". Since then, we have been watching the markets closely for signs that "artificial" forces were at work to assuage the markets, to change the psychology from bad to good.

The results, at least in the short term, are there. Psychology is according to the sentiment numbers, extremely positive, volatility much, much lower, and the stock market much higher. We have pointed out various signs, like the tick data, that lead us to believe that the Fed has and is using those unconventional methods to accomplish their goals. Are these signs enough to prove our case?

We had another one on Friday. Just after the London gold pricing was fixed and that market closed, gold in the U.S. dropped in price $14 or 3.6% in ten minutes. This is like the Dow dropping from 9600 to 9250 in ten minutes. This was the largest drop in the price of gold in six years, on no news. Bond prices were down significantly which should be a positive for gold prices. The dollar was a little strong, but certainly not enough to cause even a fraction of a drop of this magnitude.

I am a big believer that anything can happen in the markets. My problem is that they seem to be happening too often and in one direction.

No positions in stocks mentioned.

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