DMR–Gold takes pause after three-day rally, stock market gets needed breather


Gold took pause this morning after a three-day, $25 rally that took it over the $1240 mark. It is now trading at $1238.50 and level on the day.  Silver is down 2¢ at $14.55. The dollar is also trading sideways as the stock and bond markets suspend trading for the day for the funeral of former president George H. W. Bush.

After yesterday’s chaotic nearly 800 point stock market rout, a breather might be just what the stock market needs. Then again, there is the possibility that a day of reflection will give rise to even more powerful animal spirits (to resurrect an old, but still lingering, allusion).  The yuan is down a bit but generally holding steady even with China coming-off as hesitant on commitments it reportedly made at the Trump-Xi dinner.

Trading in bonds is having what can only be described as a profound effect on stocks in recent sessions. Much, it seems, hangs on how the relationship between various maturities plays out, i.e., inverted yields and their perceived dangers.  What transpires will likely affect the value of the dollar and consequently gold – not to speak of future monetary policy.  It is a time for current and would-be gold owners to be vigilant if not proactive.

Quote of the Day
“I’m fond of saying how crazy things get near the end of Bubbles. Convinced this is History’s Greatest Bubble, I’ve been anticipating a pretty astonishing variety of ‘crazy.’ Watching this all unfold with increasing trepidation, I sense an important line has been crossed. It’s time to retire ‘crazy’ – find a replacement that conjures up something more foreboding – more disturbing. And markets, well, they’re seemingly fine with it all; at times almost giddy. And that’s the fundamental problem: Dysfunctional markets continue to promote incredibly risky policy behavior – the polar (bear) opposite of imposing discipline.” – Doug Noland, Credit Bubble Bulletin

Chart of the Day

Chart courtesy of St. Louis Federal Reserve [FRED], Board of Governors, IBA

Chart note: With the US dollar the centerpiece of interest the past several weeks, we thought it appropriate to post the long-term overlay chart of the gold price and the major-currency version of the US Dollar index. As you can see, the dollar has been in a secular, long-term decline against other major currencies since the early 1970s when the U.S. abandoned gold-backing for the currency and the world switched to free-floating gold and currency prices. Despite all the talk of a strong dollar and how Treasury secretaries historically back the concept, the reality is the opposite – a weak dollar when measured against its major competitors over the long term. In the end, unencumbered ownership of physical gold coins and bullion, as this chart amply illustrates, has proven to be an effective defense in the on-going process.

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