The US Fed is pumping the money supply and trying to manage the unmanageable. There is now ‘QE exit’ hand wringing at each FOMC meeting, which comes out later in the minutes as the markets hang on every fretting statement that these policy clerks utter. Then the jawbones come out and talk nicey nice in the media and the market calms down.
They are not going to be able to manage this to anything other than a very sad outcome. They actually seem to think that policy making is bigger than the market and the economy. But it isn’t.
We are in an economic contraction and even after gold has been blown up, its ratio to the 3 Amigos of positive economic correlation continues to indicate the counter cycle.
Gold ratios to copper, oil & stocks
Gold bugs need to be really careful here. There is still bottom calling going on and it is best not to root root root for the home team in any kind of a speculative casino patron type manner because the precious metals may have entered the realm of macro economic indicator and exited the realm of near term profit play.
The destruction in gold and gold stocks along with the now pronounced weakness in key commodities like copper and oil bring the prospect of deflation front and center, or rather the prospect that the inflation is not taking in economically sensitive materials and resources.
Yesterday the St. Louis Fed updated the Monetary Base data and it is still boinking upward.
Adjusted Monetary Base, updated 2.21.13
But then the dBoys would immediately produce this picture for contrast…
We are in an economic contraction and they are still inflating against it. The big question – the one for all the marbles – is ‘is it deflation first and then hyperinflation or the other way around?’
I cannot shake the feeling that what the precious metals and now commodities are indicating is much darker than what the pom pom waving gold bug community may believe. It’s an economic contraction and that is the only environment that the accursed gold mining sector has a chance to thrive.
But in that scenario they go down first. And boy have they been going down. They may have bottomed and they may not. I have refused to bottom call a thing since HUI lost 460′s parameter to normalcy. I’ll just keep it that way, pending what any new data points that any coming bounces may produce.
But a bigger question is what are the PM’s forecasting? People need to get that answered right.