Skip to content

Gold’s Breakout and What It Might Mean

September 3, 2009

Divergences in market behavior are important to observe to gain clues about what is going on. Gold tends to follow three major correlation paths: 1) As a leading indicator of potential credit or currency events or 2) an inflation play when it moves in tandem with oil 3) as sort of an inverse play on the US dollar—when the dollar tanks, gold rises and vice versa. For the last few months, gold moved up along with other commodities and inverse the falling dollar. This indicated both prospect for future inflation and for further currency weakness. Right now we are seeing the US dollar hold in a tight range near its lows, oil and other commodities start to weaken, while gold is making a major breakout. The divergence implies that the force behind the gold breakout is something other than simply inflation expectations or fear of a weakening dollar. My bias is that this divergence indicates either 1) the known existence of something burning on the credit front that we are currently not aware of OR 2)  simply the  fear or expectation of some sort of bank failure or credit event. Only time will tell which of these two scenarios gold is reflecting. A final possible, but less likely scenario is that gold is forecasting a serious breakdown in the US dollar–an event that I would discount given that the lead/lag relationship between the two is generally very tight and appears to occur almost concurrently.

6 Comments leave one →
  1. Joe Marc permalink
    September 3, 2009 1:21 pm

    I think Gold’s move is a sudden awareness (that should have been obvious before) that we have an administration that borders on fascism in their desire for total control, along with their unbelievable lack of economic logic and knowledge.
    The past 6 months from Washington is surreal.

    • david varadi permalink*
      September 3, 2009 1:32 pm

      joe,

      trust me i can’t stand the government bs either–even as a canadian! even though it doesn’t affect my trading as much, it affects the future for everyone in North America and they are really blowing it in my opinion. Instead of investing in what made the country great, they are protecting dying industries (gm etc) and strangling innovation through excessive regulation. We need people willing to work 3 jobs without complaining to compete globally. We need people willing to take risks with their money and try to start businesses. Instead we have a whole lot of people that feel that they are “owed” pensions, vacations, health care plans etc. It sounds like the US is becoming the new Europe.

      America is getting fat, and im not just talking about obesity—the empire is doomed.
      dv

  2. September 3, 2009 2:23 pm

    Or it could have just been coiling up all summer, fatiguing all of the inconsistent “gold bugs” and then ran off with very few people actually in the name.

    But I’m leaning towards the security-against-a-credit-event.

    And Joe: fascism or socialism. Gotta pick one.

    • Joe Marc permalink
      September 3, 2009 3:06 pm

      Good point Steve on the “fatigue” point. I believe that is in there as well.
      And also probable credit events. Right on
      But also what I said is also a major issue.
      Your question “Fascism or Socialism, gotta pick one.”
      Well I didn’t mention 2 “isms”. Never mentioned Socialism.
      So I kind of go with Fascism. Now I sure don’t mean Concentration Camps etc.
      It means “our leader” knows best, stifles all contrary views, muzzles the press when he can, indoctrinates the young,uses blatant and often untrue propoganda.
      Uses tax money and the people’s money to foster a takeover for him and his cronies, wall street, unions etc. So yeah sadly it seems like fascism to me.
      I pray that I am wrong.

  3. scrilla_gorilla permalink
    September 3, 2009 4:45 pm

    “I think Gold’s move is a sudden awareness (that should have been obvious before) that we have an administration that borders on fascism in their desire for total control, along with their unbelievable lack of economic logic and knowledge.
    The past 6 months from Washington is surreal.”

    Yeah, not like those good old Bush days. They were GREAT! Let freedom ring (just not over the phone, or else the gov’t agents will hear it)! And don’t let it ring too loud, because the President says he can throw you in jail indefinitely without a trial just cause he says so (even if you’re a U.S. citizen!).

    But that’s not “fascism”. Injecting capital and taking partial ownership of failing businesses (rightly or wrongly) in the face of economic collapse is fascism!

    No, Joe, what the gov’t is doing is quite possibly stupid or a waste of money (although much of it is just an extension of policies started under Bush), but it has nothing to do with fascism, I’m quite sure it has little to do with the timing of today’s spike in gold prices, and the fact that you think this administration’s economic policies “border on fascism” makes me certain that your mind “borders on parrot”.

    DV – Sorry for polluting your blog with politics. Keep up the good work.

    • david varadi permalink*
      September 3, 2009 4:54 pm

      well i promote and support all equitable debate–cheers dv

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: