Bullish comments for a down day in a down market.
Although others may contend that the present round of currency devaluation is deflationary and therefore detrimental for gold as it reduces demand, I consider it bullish as it would appear to be a genesis for another round of global inflation. Devaluation of a currency is ipso factor inflationary in the currency country, and countries that are concerned with deflation are taking inflationary steps as SOP to fight deflation. And those countries not yet affected thereby, such as the US, are under pressure to place on hold any attempt to combat current inflation and provide liquidity in the interest of staving off deflation. In short, where not to long ago the global banking system was geared to fight inflation, it is now appears geared to accommodate, if not to encourage, inflation. And there is no assurance that once it starts, inflation can be stopped before it overshoots its mark any more than global banking authorities can immediately stop the present deflationary cycle.
As earlier reported, the macro plays that the crisis has produced are a strong dollar, depressed commodity prices, fears of global deflation, faltering equities, safe-haven buying of U.S. Treasuries, neglect of gold and liquidity-providing central banks that are operating in a crisis-prevention mode. When the cycle turns, the same crisis trades will then come off - and probably with a vengeance. The dollar will fall, aided and abetted by a looming current-account and foreign debt problems, commodity prices will snap back, as markets begin the process of discounting a resumption of growth in commodity-intensive Asia and a return to some semblance of normalcy in the global economy. Fears of deflation will recede, replaced by the time worn cyclical concerns of inflation. The safe-haven bid for Treasuries will ebb, as concerns over credit risk diminish. Equities will finally have to contend with pressure from interest rates, raising the more classic valuation questions that have largely been absent in the current correction. Gold will benefit from inflation, drop in dollar, and as a monetary asset of last resort. In short, relative to current conditions, world financial markets will be turned inside out.
The look of the current depressed market is clearly in the mind of the beholder: Rhona O'Connell, metals analyst for brokers T.Hoare & Co reports "We understand that there was considerable pressure from short-side traders last week and the market absorbed everything that they could throw at it. Combine this with the fact that we are in the slowest part of the year with respect to physical demand and the underlying picture is clearly more robust than the currently stagnant price would suggest,'' |
