Tuesday, October 02, 2007

Gold And XAU Update

We've talked about gold needing to rise or oil needing to fall or both as well as Newmont Mining being at strong support in the last few months. Both have obliged as both gold and Newmont have risen in the last few months. The XAU found support at one at a longer term trend line and the mid 120s and Newmont at its longer term support around $38-42.

If you believe gold is telling you inflation is rearing its ugly head, the Fed is printing money, the Fed is going to print its way out of today's circumstances or any of the other generally accepted notions, you had better get a new set of glasses because I believe almost everyone is likely in the dark with respect to what is going on. I expect gold to break when the equity markets break but we are about to find out if gold has any real legs under it as the Gold & Silver Index, the XAU, is as the top end of its channel while also challenging its old highs. Should gold related investments rise substantially from here, it might be time to buy that bomb shelter you've been contemplating. That's a joke. Although this really is not an appropriate time to joke. What else is one to do with the messes building around the globe?

Gold is most likely telling us one of two things. First, that the rate cut has no place to go except into the existing bubbles fueled by your friendly banker and his band of brothers; the investment firms and hedge funds who rely on banks for levered capital and are trading in the stocks and commodities markets or second to expect a very serious credit crunch and its big brother; deflation. Or a little of both. And, what have we talked about incessantly? The lack of demand for capital aka supercharged fuel for Wall Street ramming assets, banks trading in global asset markets, the financial industry bubble, banking hazards and deflation. They go together like peanut butter and chocolate. Or maybe more appropriately like foxes and the hen house.

Isn't it ironic Alan Greenspan has just given us his perspective over the last few weeks that we should fear inflation in the coming years? Deflation is the Satan of economics. I've been hunting him for years. He is very insidious and deceitful. The commodities boom has convinced nearly everyone that he is no where to be found. He has convinced economists and central bankers who worship at the alter of monetarists that he cannot make an appearance on the grand stage. That he can always be defeated. A view reinforced by a general consensus that the Fed drives the economy. He has been lurking for more than a decade with little fanfare or detection. Is he here to take his rightful place in the global economic throne while every central banker, economist and Wall Street prognosticator chatters about inflation and moral hazards associated with a Fed rate cut? The time for concern of moral hazards is long over. We missed that boat eons ago. Now it's time to watch for the mark of the beast. By the way, this is a little economics allegory-ish post. I'm not really expecting Satan to appear. Since some don't share my sardonic writing style, I thought I should clarify myself.
posted by TimingLogic at 8:54 AM

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