Gary Tanashian submits: On the front page of my website currently resides a chart of the Dow/Gold Ratio. I put it there for personal reassurance in the face of short-term difficulties for my portfolio stance over the last 1.5 weeks and also to lend a calm image to anyone who may be affected by the hype-fueled financial media that makes [paraphrased] claims like "oil can't keep gold up", "gold is a commodity and commodities are going down" and "we have just the right amount of growth in the economy, the Fed's in control". Here is another view of this important chart projecting the counter-trend rebound in Dow units to end in the 20-23 ounces of gold range.
I look around various dens on the web and I find bears exhibiting extreme agony at the moment: The PPT has really exposed its farcical modus operandi as it props UST bond paper/stocks and hammers commodities. Another script reads something like this: "Honest money" is being manipulated by coordinated central bank sales in the lead up to the elections. I am not going to comment on the levels of validity to these assertions because I simply do not know the answers. All I do know is that the chart says stocks became deeply oversold when measured in their ON-GOING bear market to gold. It's a technical thing. The target is getting close for things to reverse back to the primary trend (stocks will continue to be bearish when measured in gold).
This will not happen over night however. Markets work in an ongoing process and that is why charts are a must for daily, weekly and monthly check-ups on trends.
Daily I read and hear commodity/energy bulls holding their bullish line for the long run, which makes me wonder whether our 290 target for the CRB's ultimate bottom may not hold. The majority of these bulls do not discriminate gold from other "resources". I do. We are in a contraction or more accurately a much needed (and predictable) breather in the inflation economy whereby the Fed gets the herd into the "proper" assets (US Treasury debt first and foremost) before trying to reflate the economy. But that is getting ahead of ourselves.
There is still more talk in the mainstream about high oil prices than there is of its decline. The masses will need to be begging or demanding the Fed drop rates. That will be gold's real trigger; public sentiment that in essence says "give us inflation or give us death!". The Fed will try to oblige as they have been doing throughout the decades.
Deflationists say that the Fed will be powerless to stem the tide of a rush to cash and debt-repudiation once it gets rolling, ignited by a real estate market that is currently rolling over. To be sure this is a dangerous time and I am convinced that it is not so easy for the Fed as each contraction-reflation bubble cycle becomes more levered and dangerous than the one that preceded it. But this only adds to the case for gold. We can have deflation and inflation at the same time, whereby massive amounts of capital is fleeing the asset markets in repudiation of sublime (and un-payable on a macro level) amounts of debt while the Fed and global central banks "push on a string" and make their intrinsically worthless paper available to every last would-be bubble participant who wants to play into the wee hours in the casino.
If we are to have another growth phase after the current retrenchment plays out, I expect gold to be well out in front of stocks and a few months in front of general commodities, just as it was in 2001. If the Fed fails here in its business-as-usual, gold will be the asset (other than cash for short term liquidity) for an environment of chronic and unstoppable economic contraction (even as the Fed tries to stimulate growth) - in my opinion given a lifetime of non-stop money supply inflation.
As mentioned previously, if the asset class for the current macroeconomic backdrop were little green men from Mars, I would find a way to chart them and gain entry into this would-be hot market. I do not worship at a golden alter as it seems some in the sector do. I am just trying to get through challenging times on the right side of the trade.
