Bewildered markets, including gold, await the next twist of fate


Financial markets, including gold, continue to stumble about in a decidedly bewildered state stunned, it would seem, by the fundamental changes unfolding in the global economy and cautiously awaiting the next twist of fate. The U.S. stock market just spent the past eight past sessions in decline, something it has not done in a very long time. The yield on treasuries lurches back and forth determined one day to react positively to the interest rate environment and and equally determined to react negatively the next. Commodities spurt higher based on inflationary expectations one day than track to the downside on dis-inflationary expectations the next. For its part gold can’t seem to establish itself firmly above the $1300 market, nor can it establish itself with any real conviction below the $1300 mark.

Today we have had more of the same though the yellow metal has managed to eke out a $2 gain at $1269.50. Carlos Guitierrez, former commerce secretary under George W. Bush and now head of the National Foreign Trade Council, summed up the future neatly when he told Financial Times yesterday, “The parties that will be most impacted are U.S. companies. They are going to report bad earnings. It is going to hurt the stock market. Even worse, we are going to put people out of work and it is going to spark inflation.”

Sounds like a prescription for future gold demand. . . . . .

Quote of the Day
“Our central bank monetary-led boom has made debt replace wealth for a long time. That’s not sustainable, of course. (We are ‘mining’ our soil for short-term gain.) We’ll see a return to the significance of productive stuff again I think, and that even includes farming – maybe especially farming. And the Midwest has a pretty good track record with productive stuff. Hard assets will matter again. But of course, I sound ridiculous even saying such things. Like a grumpy old grandpa.” – Mark Spitznagel, Universa Investments (as quoted by columnist, P.J. O’Rourke

Chart of the Day

Chart courtesy of

Chart note: Last week we posted the chart showing that the Bank of Japan’s balance sheet debt holdings were even more burdensome and tenuous than that of the United States Federal Reserve. This chart shows European Central Bank’s balance sheet now at €4.56 trillion or $3.92 trillion – mostly in sovereign debt instruments issued by the European Union’s member states. Together the three central banks hold a mind-numbing nearly $13 trillion in debt instruments. The European Central Bank announced last week that it would halt its bond-buying operations by the end of 2018. Japan will continue with its quantitative easing program as long as it deems it necessary.

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