Global Macro Commentary

It has been a rough week for reflation/short-dollar trades, especially given the Fed announcement on QE. Weak/volatile performance in such trades may have also been affected by quarter-end accounting/profit-taking/re-allocation etc…not to mention that gold denominated in euros has corrected hard (shown below), following the ECB announcement to not partake in QE. Bottom line is: fundamentals (for gold denominated in dollars) have been ignored during recent market movements. Given such market reaction, along with increasing bullish faith in the current bear market equity rally, I’m starting to think that the sell-off in equities must resume for gold to break 1000 (i.e. safe haven status is still the most important factor for gold). Although the Fed announced plans for QE, a continued rally in equities would diminish market expectations for such QE. So when will people flock to gold in fear of inflation? Probably not until gold itself is over 1000, which should act as a reminder to the public about the level of inflation in the system.

Gold/EUR: 2-year (correction over?)

The Fed has said everything it could; there is nothing more to say (other than declaring further purchases of long-term treasuries). Therefore, the only factors that can drive gold above 1000 are bearish economic news/data. Of course, it doesn’t help that mainstream bearish expectations have become aligned with the actual data (plus, the government keeps releasing data that gets revised later on). But one thing is for sure; this correction ain’t over yet – bad news/data will continuously reveal themselves in some manner for quite some time.