Gold Caught In Inflation Tug-o-War
Gold continues to gyrate in an utterly frustrating manner. A couple of weeks ago I Buzzed that I had once again gone long gold futures, based on my belief that we have entered an extended period of competitive currency devaluations between countries: a necessary move to combat the ongoing bout of deflation across asset classes.
Back then the chart pattern for gold looked much more promising than it is right now. On the other hand, we now have a meaningful positive divergence between the price action and the "rate of change" of price. On the other hand, there's always some indicator out there that can support one's underlying thesis.
The bottom line is this: In my opinion, there's no debatable issue as to whether the government is desperately trying to inflate its way out of the current mess. The US monetary base has gone parabolic, and that is a coconut-sized seed for future inflation. The multi-trillion dollar question is something we have beaten to a pulp in the 'Ville: Will the base find its way in the economy, where the multiplier effect will then create a hyperinflationary explosion in the money supply? Or will this base will sit and rot in the coffers of banks who are too scared or too capital starved to lend it out, and deflationary forces will then persist?
Gold is caught in this tug-of-war. The reason I have positioned myself on the side of inflation may be overly simple, but, it's good enough for me. From a cultural and historical standpoint, I believe the United States government will not accept another deflationary depression, even if it means creating and injecting currency rather than credit into the system.
So while gold may swing wildly as the government finds itself moving toward inflation, I think odds are better than not that it will ultimately succeed.
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I watch the charts and assume the market knows everything.
right now the charts went through a 5 pt reversal and momentum is negative.
this doesn't bode well short term for big rally.
regarding banks and lending.
I for one COULD take out more debt, but according to Prof. Depew it is best to retire debt and not put on new positions.
2nd banks aren't to interested in lending right at the moment
I say this with the following, 1st they have tightened underwriting - good about time.
2nd they have raised the interest rates, ex is 30 yr fixed for home at 7.25% w/ no origination.
on the commercial side, I am now seeing done deals not closing. we are talking 30-40% down with absolutely solid borrowers who can't get their banks to cough up $1.2 million.
Not very big for a $2 million purchase!!!
As prof Depew says, when the corp v treasury spread comes down to near equality then AND ONLY then will the credit freeze begin to thaw.
Problem is - when will that be???
Probably not very soon in looking at the charts.
Remember don't get to close to what you are trading. The basic reminder is that we should assume we are looking at banana charts and let the chart tell you what you need to know.
What is that??
Up is up until it ain't
and
down is down until it ain't
Good luck with that gold trade - I'm kind of routing for you as I own the physical stuff!!!
but then again don't want my cash to evaporate either.
No doubt the fed is trying to inflate, I just dont think it will happen too soon. 12 months +? Sure... but not now.
Today's trading was weird-- quiet, and one of the few time I saw the dollar rally so quick and gold did not budge.
a simple question to answer-- What buy gold today? Its dead money, volatile, and better opportunities exist in other investments.
Now let's assume we're right.
It's 5-7 years later.
What has produced a better return, measured in USD----gold, or the S&P 500?
I think the S&P.
Just my opinion....
