The Dollar, Inflation, Money Supply, and Gold...
We all know that the dollar, inflation numbers,
and money supply, influence the price of gold.
But, do we really know the historic
relationship of of all four?
How can we be in the midst of record high oil prices,
a systemic meltdown in the financial system, have the
US Dollar at all time lows, and have the PPI come out
yesterday with the highest inflation number since 1981,
and have gold, and gold stocks correct?
Per Paul's post, partially because the Fed has put the
brakes on money supply.
Using M2 (the most broadly accepted measure), the Fed
had the pedal to the metal at the beginning of the year.
But look where the increase in money supply peaked.
... mid-March.
Exactly where the gold price peaked.
And look at M2 post the mid-March peak, it's been flat.
But, what about soring PPI? Yesterday's PPI was the highest
since 1981? Why isn't gold roaring on a 27 year high in
inflation?
Here's an interesting look at PPI and the Gold price
from the last major bull market in gold...
sliderontheblack.com
A lot of us are guilty of spending too much time listening
to the cheerleaders (gold-eagle, 321gold, kitco etc.) and
watching the highlight reel, and spending too little time
thinking like the enemy, or studying the bear case for our
positions.
How much of what you read on the permabull boards is really
anything other than the same old regurgitated cheer leading
blather about Bernanke dropping money from helicopters,
about record high inflation numbers, about the gold
readying to close the oil:gold ratio gap, and all the
other one-sided pom-pom waving blather?
When's the last time you actually dug deep into the inflation
numbers, or studied their historic relationship with the
price of gold?
When's the last time you took a couple of hours and studied
the bear case for gold, or commodities? Or, the bull case
for the US Dollar?
What do you think the time ratios are that a
Bill Parcells, or a Bill Belichick spend watching
their own highlight reel vs. studying their opponent?
And why do you think that is?
Should it be any different in trading?
Want to make more money?
Spend less time studying the bull case on your position,
and more time studying the opposite side of the trade.
Mo later,
SOTB
PS: Got Gas?
The rug gets pulled again.
-- whodathunkit?
Talk about turning a market on a dime.
Some things may be too big to fail, or even too big to bail,
but evidently not... too big to turn.
And PPS:
Does this mean the run for gold is over?
No.
It means you keep taking what the market gives you,
as many times as it keeps wanting to give it.
PPI is a lagging indicator, always has been,
always will be.
Bernanke has put the brakes on money supply,
and Paulson is doing what he can to put a
temporary bottom in under the dollar.
They'll need to step on the gas pedal again,
and it won't be long. |
