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Weldon's Metal Monitor


Thanks Greg!


From the U.S. Treasury's TIC data released earlier this week:

• Net Purchases of UST Notes and Bonds, Europe ex-UK ... $17.37 billion in April, the LARGEST net monthly purchase of UST by continental Europeans in OVER FIVE YEARS.


• Net Purchases of UST Notes and Bonds, Total All Foreigners ... $24.66 billion, down from $27.79 billion in May, and down BIG from $42.51 billion in net UST purchases by foreigners posted in February.

So, combining the two sets of figures, we come up with a couple of points of capital flow interest:

• Net Purchases of UST. Percent of Total purchased by Europe (ex-UK) ... 65.0% of total in April ... versus net sale in March, and 11.8% of total foreign net purchase in February.

And thus, perhaps MORE importantly from a macro-perspective ...

• Net Purchases of UST EX-EUROPE (ex-UK) ... $7.29 billion, down HUGE from $43.11 billion in March, and $37.5 billion in February.


WORSE yet, ironically for a change, is the admittance that April figures are 'stale' ... which in this case only INTENSIFIES their macro-message, since it means the flow of domestic capital OUT of EUR took place BEFORE the Constitutional nay-say in France.

We have been pontificating on this very thematic platform for months, if not literally YEARS ... the credibility of ALL paper currency, is coming under increased investor scrutiny.

Indeed, NEITHER the USD nor the EUR, nor Asian currencies, are in 'favor', amid the continued macro-eco-erosion, and paper debasement as a race to reflate has developed.

MORE than that, we offer ... the "Crumb Theory".

From the SECULAR perspective, an over-reliance in terms of global GDPO growth has been directed at the US consumer, as THE engine of global consumption demand growth.

The Fed has been complicit, and facilitated a seemingly perpetual growth in US consumption via DEBT, most recently ACUTELY linked to home values.

It is NOT a US housing bubble.

It HAS BEEN, and still IS, a US consumer-housing-leverage DRIVEN global wealth bubble.

Unfortunately, Dallas Fed President Fischer is RIGHT ... it IS the eighth inning of the ball game ... only he was watching a different game, as we note that it is REALLY the US consumer levitation ballgame that needs to be monitored.

Indeed, with housing values and supply-demand dynamics STRETCHED to the MAX, there is ever LESS 'room' to expand ... and ... with consumer DISTRESS on the rise (note a new high in the Fed's Household-Debt Servicing Ratio, and rising Foreclosure rates in realty hot-spots) ...

... there is an increasingly SMALLER crumb, ESPECIALLY when / if interest rates are on the rise.

So, the crumb is now SO SMALL, as to suggest that twenty years, if not thirty-five, of co-dependent consumption-debt-export addiction is coming to an OVER INTENSIFIED point ...

... as exporters appear willing to accept a HUGE HIT in raw materials priced in their OWN currencies, JUST to maintain their share of the crumb.

Observe that crude oil, copper, gold, and many other commodities are now breaking out to the upside in EUR, SEK, GBP, PLZ, HUF, CHF, and in many cases, these raw materials are reaching new MULTI-YEAR HIGHS ...

... at the same time that the European economy is CRUMBLING.

Thus, we offer a corollary to the "Crumb Theory" ...

... the "Commodity Conundrum".

In other words, SHOULD global monetary authorities, led by the US Federal Reserve, ACT to further tighten monetary policy, BECAUSE of a resurgent rise in commodity prices.

Certainly the concurrent rise in stocks complicates things, giving credence to the belief that commodity reflation reflects macro-economic reflation.

BUT, the stocks leading the charge are commodity based, still, as well as linked more directly to THE ULTIMATE SOURCE of global GDP growth, the US housing market.

So, if global monetary authorities react to the 'Commodity Conundrum" by further tightening monetary policy, then they only serve to EXACERBATE the risk to the global macro-economic scene by making the crumb ... smaller.

It's the Commodity Conundrum" ... versus the ... "Crumb Theory" ... in a steel-cage death match for the AGES.

AND, beautifully, this all ties in with thoughts of a continued BOOM in commodities, perhaps the third wave of a secular wave, the first bull wave already passed, followed by the second wave correction just endured ...

... FUNDED by the still ample global liquidity that NO LONGER WANTS TO HOLD DOLLARS OR EUROS OR BAHT ... but stuff, oil, drilling stocks, mining shares, gold, natural gas, coal ... etc., etc. ... liquidity that is LESS and LESS NEEDED within the REAL transaction / consumption / production economy, thanks to its macro DEFLATION.

While we will extrapolate on our macro-musings in our next Money Monitor, the bottom line reads ... it may matter NOT, for gold, which appears to have resumed its SECULAR trend towards appreciation against ALL paper currencies.

Yes, we re-entered the long side of gold this morning, adding to our existing position in silver.

To further exemplify our point, we note, again, the chart on display below plotting Gold 'priced-in' EUR, which has set a new 13-YEAR HIGH this week.

This is CERTAINLY NOT ... because of economic-reflation in the EU !!!

The price of gold in EUR is merely catching up to the debasement of the USD that has already taken place, as noted in the long-term weekly tri-overlay chart on display below. This chart REVEALS the SECULAR UPTREND IN GOLD ... against the USD, the EUR, and representing Asia, leading the charge in fact, the THB.

Of course, as we have stated previously, given the MACRO backdrop, we are NOT thinking ... breakout in gold against all currencies ... but, rather, we are thinking ... break DOWN in all currencies, relative to gold.

Speaking of leadership, Gold in Baht is making a new multi-decade high, and yet the Thai currency is ONLY NOW BEGINNING to breakdown versus the USD, as noted in the long-term weekly chart below.

SO YES, Virginia, there really IS a Santa Claus ... and YES, the USD and Gold CAN rally together. It now seems increasingly likely, with gold in EUR catching up, and gold in THB leading the way to new highs, that gold in USD will eventually follow suit. Note the 'dollar-adjusted' gold chart shown below, reflecting the dual gold-dollar rally (decline in this 'gold-index'), but also implying a second consecutive bear-trap in terms of the pattern centered round a 'false-reversal' via the long-term MA.

Bottom line ... a breakout above yesterday's high would be a near-term bullish signal, while a full-blown upside breakout would be signaled if $448 were violated, as noted in the cash chart shown below. Indeed, with the upside re-reversal in the 100-day MA, now both moving averages (100-and-200-day exponential) are trending higher, again.

We are back on board the bullish bandwagon, taking a bullish stance in both gold and silver.

Our downside pivots, at which point we cry uncle ...

... Gold --- $424.5, basis spot ...

... Silver --- $7.19, basis spot.

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