Monday April 5, 2010 - 14:47:28 GMT
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Black Swan Capital - www.blackswantrading.com
Time for a gold dirt nap on real recovery?Key News
â€˘ The Reserve Bank of Australiaâ€™s next policy move is a â€śvery close call,â€ť with economists and investors divided. (Bloomberg)
â€˘ Mexicoâ€™s peso and Canadaâ€™s dollar are outperforming all other major currencies for the first time since at least 1998. (Bloomberg)Quotable â€“ On Greek debt
â€śTo get out of this mess, one of five things have to happen. The first, and most optimistic, solution would be a significant fall in the euroâ€™s exchange rate, say to parity with US dollar, coupled with a strong recovery in the eurozoneâ€¦The second is that Greece gets access to low interest rate loans from the European Union and International Monetary Fund. The third would be a private sector debt restructuring to prevent Fisher-style debt-deflation dynamic. The fourth is that Greece leaves the eurozone. The fifth is defaultâ€¦.[Default] It is the only option that is consistent with what we know.â€ť â€”Wolfgang MĂĽnchau FX Trading â€“ Gold: Time for a little dirt nap?
Real recovery may mean gold is due for a little dirt nap:
1) Other real (physical) asset investments in the real economy (land, plant, equipment, etc.), that appear relatively cheap at the beginning of recovery thanks to the impact of recession, compete with gold as an investment class once again.
2) If we run on the assumption that silver is more an industrial metal than gold, during recovery the relative price/demand for silver rises, thus the gold/silver ratio declines.
3) If real recover is underway, we should see that in rising interest rates which in turn makes gold appear less attractive because gold does not pay interest.
Is all of this summed up in one chart? Well, I donâ€™t know. But the chart below sure does seem to highlight the three I listed above. What you see is a comparison of US 30-year Treasury Bond Futures (red line) versus the Gold/Silver Ratio (black line). This is a weekly chart â€¦ [Chart not available in text format.]
Now I may be all wet with this relationship. But it does make sense. And the implications are these: You may hate the long bond, but you better be careful that if that hate proves warranted you arenâ€™t in love with gold.
And of course, as you already know as a reader of Currency Currents, the past bull markets in the dollar have been associated with bear markets in gold, i.e. the world reserve currency recovers its relative value so the dollar price of gold is allowed to fall.
[Chart not available in text format.]
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