In his latest note, David Rosenberg draws a lesson from yesterday’s gold surge to a record high:
Well, at least we know we can use yesterday’s action as a microcosm to what is actually driving the gold price higher (up $22.55/oz, +1.8%, yesterday to $1,268 an ounce) — and it isn’t inflation. How do we know that? Because 10-year TIPS breakeven levels — the market proxy for inflation expectations — fell seven basis points. The correlation would seem to be more with the U.S. dollar as the DXY sank 1.0% to 81.080 yesterday. And, what ailed the U.S. dollar were hints out of Goldman Sachs that the Fed was indeed planning another round of Quantitative Easing. So once again, gold has asserted itself as a monetary metal — a currency that is no government’s liability and a hedge against these recurring concerns over the integrity of the global monetary system.
You don’t even need to look at the TIPS market to see the disinflation momentum is at play. All you really have to do is read these two Wall Street Journal articles to see how the frugality theme is wreaking havoc on pricing power, even at the high end of the U.S. consumer space: Luxury-Goods Firms Turn Up Volume on Value on page B5, and Ritz Carlton Bows to Recession, Adds Rewards on page B4 (price per room is down 19% over the past three years!).
Meanwhile, Alan Greenspan is out calling the gold spike a canary in the global currency coalmine, not that anyone is looking to him right now for their gold trades.
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