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"All that glisters is not gold,
Often have you heard that told:
Many a man his life hath sold,
But my outside to behold:
Gilded tombs do worms infold.
Had you been as wise as bold,
Young in limbs, in judgment old,
Your answer had not been inscroll’d.
Fare you well, your suit is cold."
                                          The Merchant of Venice (II, vii)

Commentary & Analysis
The Safe Haven Metal? Just ask G. Gordon!

Unless you are either deaf or dead I am sure you have heard the incessantly ubiquitous ‘Buy gold!’ commercials on TV, on the radio, while eating breakfast, riding your bike, getting a cavity filled, etc. etc. etc. … Of course the primary function of these commercials is to raise the fear level of all listening so they will rush out and buy the yellow metal, as it is the only thing that will hold value in times of economic turmoil. Never once do these commercials imply the run in gold may be nothing more than a pure liquidity bet, driven by, well … liquidity.

And now our illustrious, and seemingly clueless Fed, has decided it may be time to take a breather and stop pumping the liquidity spigot 24/7, dropping down likely to 12/5. And on this news, and coinciding with the big selloff in stocks, another bet that is liquidity predicated, the safe-haven metal went quickly into reverse gear yesterday. Maybe the FCC truth-in-advertising committee needs to take a look at this. The least they could do is spare us from having to watch G. Gordon Liddy’s painful sales pitch fifty times a day.

Granted, my barbarous relic mini-screed is likely a bit pure envy given I missed the move, but also a bit real concern that those sitting on their stash could be in for a very big surprise. And when one has a lot of his “wife’s” future inheritance, a la the gold bugged father-law (FIL), based on such glitter, it adds urgency to the message.

There are three concerns on this front: 1) Said honorable FIL knows better than to believe much I say; 2) he is very healthy and may still be holding metal when I take the celestial dirt nap, and 3) if he goes first, there is a good chance we might need to tear down the entire house to find where the gold is hidden. I guess we can hedge with futures.

Yes, it is a personal problem; back to the dismal science and technical mumbo jumbo of it all…

Notice the QE1 signal for main rocket launch; it’s all so easy in retrospect I realize. QE2 rocket booster of its own added some nice gains too. But QE2 has ended.

If this is primarily a dollar problem, as G. Gordon Liddy tells us again and again, why hasn’t the US Dollar Index put in an all-time low when gold put its all-time high $500+ dollars ago?

And if gold is such a safe haven, why did gold get slammed during the time when havens were needed the most? Gold fell from $995 per once to $718 per ounce when the Dow was crumbling in the midst of the credit crunch. Granted, gold made a swift recovery, but was that in anticipation of the expectation of pure QE juice on the way from the Fed?

Another thing that G. Gordon Liddy tells us is the US bond market is about to crash (he has to stand in line to tell us that one as so many guru’s have stolen his poison there). But interestingly, the correlation (seen clearly in the chart on the next page) has proven precisely the opposite: gold has moved higher with Treasury prices–even though most of the gold bugs have expected or wanted bond prices to tumble.

Good idea, bet against your own positions…but screwed up understanding of global macro flow is part and parcel in the world in which we live…

And last, but not least, and as strange as this may sound to many readers sane or not…I think the US dollar is putting in a major long-term structural bottom. The fact that sentiment has been so darn negative, liquidity was so darn loose, and gold prices went so darn high, and the buck has held above its credit crunch low near 7070 on the US dollar index, suggests there is more support there for the dollar than meets the ear or eye…..

[Long-term Gold vs. Dollar Index Chart Next Page]

I’m headed to my FIL’s house on Sunday for a belated Father’s Day and birthday celebration. I shall report back any comments that are printable.

Take care and have a great weekend.

P.S. I will be doing a major Global Macro Analysis webinar soon for all interested. I will be sending an invitation early next week.