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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum

GLD 457.82

+1.3%

4:00 PM EST

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To: bart13 who wrote (85173)	12/28/2011 5:11:03 PM
From: pater tenebrarum	4 Recommendations Read Replies (2) of 219660

Look closely at EONIA - it merely follows the ECB's administered interest rate. It went down during the 2008 crisis, not up (it was high before the crisis broke out because the ECB hiked rates in early and mid 2008 if I recall correctly). I assure you there is not much fiddling in EONIA-Euribor spreads and euro basis swaps. They are fairly good indicators of financial stress. As far as the effects of the ECB's interventions go, we will only get a full picture in the new year, once banks are beyond the year-end cut-off date. It is way too early to declare them as being ineffective. We know that in 2008-2009 euro area money supply exploded when the ECB did the same thing. Also, the recent action in Spain's bond market indicates that the banks are beginning to play the carry trade. Italy is not such a good indicator at the moment because it had huge auctions and switched to a higher yielding benchmark (then again, Italy's auction calendar remains full in qu. 1 as well). As to M3 - as I've often said, I think it is inferior as a measure of money supply to TMS and prone to occasionally giving wrong signals in both directions. I am anyway loath to make too much of statistical correlations - there are too many unquantifiable factors that determine prices in the short term. Strong money supply growth does not mean that the gold price must go up all the time - it only tells us that some prices in the economy are likely to go up with a likewise unquantifiable lag. What we do know from experience (this is to say the experience since 2000) is that gold often reacts with smaller lag to a growing money supply than other assets. Since gold is now close to major support and there is a growing consensus that the bull market is over, it may soon surprise in the other direction. Wouldn't be terribly shocked though if it had again a very volatile year in 2012 or if the correction became deeper before a reversal. The fact remains though that the fundamental drivers of the gold bull market are all still in place.

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