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Anybody read Wayne Angells editorial in the Wall Street Journal the day before the last Fed Meeting? Basically, he was saying that the best forward looking inflation indicator was the price of gold. Therefore, what the market was saying was that it is not concerned about the future prospects of inflation at this point in time. I dont think this comes as a surprise to anyone. He went on to use this logic to justify why the Fed will do nothing with regard to interest rates, which is exactly what they did-nothing-as expected. However, he went on to say that the Fed should be uncomfortable with the price of gold much lower than where it was-285, for this would indicate that we are headed for deflation rather than decreasing inflation. ( And,of course, deflation is an evil to any market based capitalistic financial system, because it undermines the very essence of any capitalistic system-money.) I thought this was quite interesting and supportive of the arguement that , with the price of gold where it is currently, the downside is limited compared to the upside potential, particularly if Mr. Angell's thinking is reflective of the thinking of Mr. Greenspan-The fed will see it as against their best interests to see the price of gold go much lower. I find this way of thinking quite accurate and it may signal that we really are close to the bottom or beyond. |
