Inflation

The hype is dying.  10 years of inflation hysterics have gone down the drain even as global policy makers pull out inflationary bazookas and use them at the slightest hint of economic trouble.  The BoJ’s recent action was just the latest and most striking in its timing.  Global markets were bouncing within correction mode and the Yen had just pinged a key resistance level.  The BoJ then blew the Yen up with policy designed to at once reward risk takers and asset holders and mercilessly punish the Japanese people, renowned for the ethic of saving.

But the global inflation is dying despite these periodic bazooka blasts.  The US Fed as much as admits it wants inflation.  More accurately, it will do anything to stave off the next deflationary impulse because when that takes hold it is going to unwind the system, and they know it.  Why on earth do you think noted Hawk James Bullard was trotted out the moment the stock market took a routine correction in October?  Here Jim, get out there and eat that mic and calm them down.

Gold is not about inflation and in this cycle it, as a squarely risk ‘OFF’ asset, is about the opposite, the deflationary unwinding of the inflated excesses which now are no longer clustered in commodities and global markets, but in US stocks and the balance sheets of certain corporations set up to benefit.

In a dis-inflationary environment, which is the preferable one for the gold stock sector, the pain comes first and the rewards for those left standing come second.  We have not exited the pain phase for gold bugs and most people still think ‘no inflation, bad for gold’ when they should be thinking ‘no inflation… that means eventual deflationary impulse… bad for the economy and stock markets and one day, from the ashes good for the gold sector when and only when gold out performs other assets positively correlated to the economy’.

Click on picture to enlarge

Goldilocks has been in play in the US as the global dis-inflationary pull has dropped the (TIP-TLT) inflationary expectations’ gauge lower.  At some point Goldlilocks will morph to something less benign for the economy and for stock bulls.  But it has not yet.

Macro Fundamentals

Here is a constructive chart for gold mining fundamentals, gold (GLD) vs. oil (USO).  Counter cyclical gold would need to continue rising vs. cyclical (miner cost input) crude oil.  Gold would rise vs. oil and commodities in general as the economy starts to slip up.