Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Gold Is Speaking, Are you Listening?

Commodities / Gold & Silver 2009 Sep 06, 2009 - 10:15 AM GMT

By: J_Mike_Oliver

Commodities

Best Financial Markets Analysis ArticleIn the current global manic rush by central banks to inflate and by governments to spend that paper, there are a few observers who have expressed concern that at some future date this wholesale, last ditch Keynesian and Statist approach just might actually produce "inflation."


Many Wall St. types argue "No, inflation is not the problem and is not likely to be the problem for some time. And besides, gold is quiet, not signaling any concern about inflation." Though they like to espouse free market generalities from time to time, these same Wall St. types actually want the State(s) to intervene to protect this or that asset class – to which they are personally attached and now sinking with. While investors are down in most asset categories by 40% in 2008, the orthodox investor and his portfolio manager can’t weather another 20% drop this year! "Oh sure, Keynes was full of it, but good grief we can’t stop this stimulus because it just might work. It must work!" All intellect out the window, it’s desperation time, wish-fulfillment time on Wall St! And how short their memories – failure to remember the policies of the Fed, from August, 2007 onward when the Fed – armed to the teeth with "surprise" interventions – sought time-after-time to halt the ratcheting decline in equity and real estate prices. Was that a success? Or did those penny-in the-fusebox actions merely delay and therefore intensify the decline to the point where a market correction morphed into a collapse? So, let’s do it some more and find out yet again! We can then worry about an "exit strategy" later, we are told.

So, with that as a backdrop, what has been going on with the various "asset classes" in recent years? And especially, what if anything does gold tell us about the risk of inflation? Is it really the quiet unconcerned metal that these State apologist economists claim? Historically gold is a wise metal that often anticipates inflationary and deflationary trends; defining inflation in the Austrian School manner – as growth in the money supply (s), which we now must think of globally, not merely as a U.S. monetary and fiscal event.

With a few comments, I provide some stunning charts that speak volumes about the actual underlying trends, asset value shifts, safety of capital, etc., all of which are reflective of macro-investment decisions that are being made, net-on-balance, by millions of global investors. And they speak volumes!

I begin with a chart that deals with the question: How have commodities done as an alternative or "balancing" asset class over the past years? In this case I measure the CRB Index’s monthly closes v. the monthly closes of the Dow Jones World Index (data begins for this equity index only in 1994, therefore the comparative chart begins then). Well, the answer is pretty clear.

Depending upon when bought into commodities as an alternative asset class (which might balance your equity holdings), you either won or lost several times over that 15 years. In fact an astute trader did well to time some swings in that relationship. But the long-term answer is that commodities were really no better and no worse than global equities over the past 15 years, and presently commodities are actually sinking at a faster pace than equities. So commodities seem to be unconcerned about "inflation" at least as mainstream economists are prone to define inflation.

The same period of time (1994 to present) gold in relation to global equities. Obviously something happened to gold relative to global stocks, something that changed its trend tone with drama in late 2008. The value (price) of gold in relation to that basket of assets exploded in a quantum manner, unlike the opposite behavior of the commodity asset class. Might I point out that the timing of this massive valuational change in gold relative to stocks was coincident with the panic by governments to reflate the collapsing bubble that a combination of their policies has created a handful of years before.

I have watched gold’s behavior v. other commodities for 35 years, and back in the hyper-inflationary times of the late 1970s’ up to 1980, gold soared, but so did the price of grains, meats, fertilizer, etc. Gold was not singularly special. It was part of a general commodity bubble. This time, beginning sharply in late 2008, Gold has made a massive statement and done it in what most mainstream economists continue to define as a non-inflationary/deflationary market environment. Gold says to those economists – define your concepts more accurately fellows. There is massive inflation (monetary expansion accompanied by State power expansion) and it is underway at full throttle. Beneficiary this time is gold (and silver) – almost exclusively. This explosion in relative valuation of gold is more historic and dramatic than any I have heretofore seen. Would not even surprise to see the net price of gold (v. dollar) engage in something comparable – as investors channel their bets onto the back of the lone horse that is still standing and reliable. Though that net price consequence is actually not a necessary event, because gold already has accomplished its role as a State-proof investment asset.

Finally, the chart below shows gold’s behavior v. the broad commodity asset class. For 30 years it moved in a range v. other commodities, no better, no worse. That sedate range of valuation fluctuation is now over, done with. Gold has made a statement – if your eyes are wide open. Gold sees inflation NOW, and has already begun to respond in an historic manner.

J. Michael Oliver [send him mail] has provided proprietary technical analysis and consulting for the past 20 years to large asset management institutions. He is also a hedge fund manager.

http://www.lewrockwell.com

© 2009 Copyright J. Michael Oliver / LewRockwell.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules