I am conflicted on the matter of deflation or inflation. To your deflationary points, don't forget that the US is a net importer and is on one end (printing) pushing out dollars to the rest of the world. You have inflation in many of those assets - fuel, food etc. commodities. I think imports will be the inflationary transmission mechanism. You say when equities recover, well that shouldn't happen before jobs and the economy recover. Growth has to be really high to sustain the current debt levels. The process of paying back debt will be a drag on growth. With growth outlook worse by the day the only thing that would make equities go higher is the denominator - USD being inflated. Bond yields can't go up without the government defaulting. That road would be so volatile that gold might even net gain (short term) in such a deflationary environment. You are completely right that gold will stop performing when equities and bond yields go up. The elephant in the room is the debt level (gov, financial), which has to be addressed before we can move out of this mire.
Damn, I just realized something. If Fed stopped being accomodative, then treasuries would soon look wobbly from a technical default perspective. Think of the reaction we got from SNB intervening on CHF. If I have not misunderstood that there was an effect of people running from CHF to gold. We are running out of safe havens. Treasuries to gold = gold bonanza But then again, it could be that people hold cash cash (and not in treasury cash). hehe, getting late - think this through tomorrow...
Just for the sake of it, I took the price of gold at the peak of the 1980 gold "bubble" ($850) and used the United States Dept of Labor CPI inflation calculator. $2330.51 http://www.bls.gov/data/inflation_calculator.htm $1923 (2011)= $701 (1980)
As i seem to remember, the way that gold bubble burst was by continuously raising interest rates. By the time gold hit $850 in 1980, the fed had raised rates to 20%. By comparison in 1972 rates were 4.5% just 2 years off the gold standard. We are nowhere near raising rates to 20% And even if the fed started raising rates 1/4% per WEEK, we are still a year and a half away from 20% interest rates.
Interesting point. You almost have me convinced that gold is "safe". Maybe it was just a little overbought yesterday and it had to let off some steam to head back up. To be honest, I try not to make bets too far out. It's crazy out there in this environment. Nite everyone. Peace.
Gold at $1,814 now. The best way for gold to go down is for me to bust someones chops about how gold is going to keep going up. I remember sometime back I started a post when gold just broke $1,200 and I said gold is never going below $1,200 again. A few hours later, it dropped nearly $100. Of course it recovered and I know we are not going below $1,200 again, but markets always like to prove us wrong...at least temporarily.
And Volcker had the room to do it, if only temporarily due to the fact US was a creditor nation in 1980. US would implode financially today with such measures. As it is we are nearing implosion with ZIRP. Happy days are gone and gold has nowhere to go but up, despite the clowns like Gartman and other tools of the media who claim gold is a "bubble". It is a world market today , and there is little the Comex and bullion banks can do in collusion to supress the price, other than for short periods of time. Once it passed 1,000, it was game over.
Price action in gold today is quite a "tell"..... Lots of "nervous nellie" longs in the market. Gold right now looks like the same "sure bet" that US real estate was in 2006. A rally in US equity markets will knock it down for sure....question is "how far down ?".
============== Sounds about right; plus parabolic stop & reverse, not that i use that as a mindless signal. Gold,GLD is still a nice uptrend; but not as good a arisk/ reward now.