A system of morality which is based on relative emotional values is a mere illusion, a thoroughly vulgar conception which has nothing sound in it and nothing true.
Commentary & Analysis
There’s gold in them there hills…Mr. Hedge Fund Manager said…grab it and run!!!
This won’t be your usual Monday morning quarterbacking on gold (as we will likely see on CNBC this morning; which I won’t be watching). But, I do want to share a couple of charts (one I shared several months back on these pages) that suggest this selloff is part and parcel to the need for liquidity and an indication the currency everyone loves to hate has probably put in a multi-year bottom–the world reserve currency, Mr. Greenback. (I use the term “world reserve currency” because dollar haters seem to hate that reality. )
Let’s start with a chart we shared before: Gold/Silver Ratio vs. Dow Jones Industrial Average Weekly. Now, this isn’t a gigantic sample size I grant you, but I think it does carry some logic (maybe fabricated to fit this story, but seems logical to me at first blush).
There is a tendency for the Gold/Silver ratio and DJIA to confirm troughs and peaks…
…and this has recently indicated multi-year moves on these confirmations. My theory (sounds better than saying “guess,” though we all know this game is about guessing if we are the least bit honest about it all) is that silver being more of an industrial metal tends to ebb and flow more closely with risk assets, i.e. stocks, thus why this ratio moves in the manner it does.
And what is interesting too, is that the last two peaks in stocks have preceded a break in gold prices by five months…take a look at this chart below comparing Gold and the Dow Jones Industrial Average Weekly….
Now, another theory…we’ve heard a lot of talk about hedge fund managers liquidating gold positions. It makes sense given that risk assets, stocks and all others, have been hammered. It was that parabolic chart of gold that hadn’t been … until recently. And we all know, when we need money to cover margin we have to take it from our winners, as that’s where the money is. If this theory (not exactly startling I know) proves true, and this is the big one for stocks and other risk assets given the background decline in global growth and liquidity, gold should follow stocks lower and the much vaunted safe-haven appeal could be history.
Was the end of QE2 the bell ringing at the top?
Dow Jones Industrial Average Weekly:
Commodities Index Weekly (CRB): This sure looks to be turning over…
So, if you think global liquidity is in trouble, other than those crappy US Treasuries, where else might be a place to hide?
[Dah dah dah dah dah dah dah, dah dah dah dah daunt, dah-daunt, daunt, daunt, daunt daunt, dah daunt …]
Your Final Jeopardy answer is?
Who is the greenback? Right, for all the money…well done!
I have one more question for all of you who believed (guaranteed in all your damn cockiness) the dollar was heading into never-never land: why didn’t the US dollar index sink miserably to an all-time-new-low as gold blew off to a new high? Riddle me that … to those know-it-alls in our midst.
Waiting anxiously for gold bug hate mail…
Have a nice day.