I've expressed my view on where Gold is going in my January 4th commentary and I have not changed that position. If I saw the metal pierce the downtrend line (green dashed) on the chart above it would force me to reconsider my bearish thesis. Admittedly, with a crystal ball that always doesn't work the way I want, any number of factors can change the picture for Gold's prospects going forward. However, when we consider all the liquidity that central banks have pumped into the global economy to stave off a virulent deflation, you would think that Gold's path of least resistance would be up. But that's not what we're seeing. Instead, the price action so far is reminiscent of putting in a long term top!
We'll see where we go from here but if Gold's time is going to come I'm more and more of the persuasion that it will be in response to difficulties the Federal Reserve might have in unwinding the trillions in Treasuries and MBS that is on its balance sheet. And that day is still a ways off.
The FOREX (Foreign Exchange) market is in turmoil due to Japan's new and finally sincere effort to stem the two decade long deflationary tide that has overtaken that economy. The new government there has basically put a gun to the head of the BoJ (Bank of Japan) and is coercing it to do what our Fed has done which is to print reams of Yen in an effort to spark demand and inflation in that nation. Whether they are successful or not is not the subject of this commentary. But the Yen, being 13% of the Dollar Index, has been impacting the inter market relationships many traders and investors use to determine the direction of all financial and commodity markets.
Last week's commentary was brief and I meant to expand on this commentary and delve into a thesis on the possibility of future inflation but it will have to wait. I've had a challenging two weeks and it has culminated in a miserable cold. So this will be short as well.
Briefly, all systems are a "go" for higher stock prices. The icing on the cake was the acquiescence of the Republican Party to offer a temporary extension of the debt ceiling on Thursday. What was really encouraging was that the market responded to this news by just grinding higher; no "knee jerk" rally but a deliberate grind higher. This is extremely bullish folks!
In addition to this, volatility as measured by the CBOE Volatility Index is at levels not seen since early 2007:
My purpose in posting this seemingly counter-intuitive esoteric chart is to show that the fear that has been part and parcel of these markets since 2008 is dissipating. Now, anything can happen to upset global markets but when we look at the historic catalysts that have roiled these markets since 2008, whether they be in Europe, China or here, they are, one by one, fading from significance.
Sure, we could have an exogenous shock from Iran or Al Queda. But even these shocks, short of detonating a nuclear device in a European or US city (heaven forbid), could only have a temporary effect on our markets.
We're going higher. Enjoy the ride! The S&P should be at all time highs by mid spring barring some more "fiscal follies". But even with these, we'll be at new highs by the end of the year.
Have a great week!
NOTHING IN THIS COMMENTARY SHOULD BE CONSTRUED AS AN OFFER OR ADVICE TO BUY OR SELL ANY SECURITIES, OPTIONS, FUTURES OR COMMODITIES. THE OPINIONS ARTICULATED ARE ONLY THIS AUTHOR'S WHO IS NOT A REGISTERED INVESTMENT ADVISOR OR BROKER ... yet!