December update

This blog is turning into a monthly publication.
It was not my intent and I am going to try at least to make it a weekly event.

At the same time it is a way to reflect on a longer period and to avoid being caught up in the daily action that tends to confuse us.

So what's going on ?

Fed cut 25 bps on both fed rates and the discount window on dec 11th.
But Market was disappointed and plunged on that same day
Let's assume that it is because some hoped for 50 at least for the discount window (but you never know the exact cause. 2 weeks before 25bps was supposed to be a good news, but it was co anticipated, and a "surprise" 50 bps was so hoped for that here's a correction.

But next day, Fed announces new injection of liquidity along with the ECB and other Central Banks, to help avoid a Credit Crunch that tends to become a recurrent news, and the market "kind of" rallies.

Of course the Fed says his action had nothing to do with the market's reaction of the day before. Right ?

Gold followed the stock market during these two days. Fell on the 11th, rallied on the 12th.

But Gold is still a small footnote in all these events.

Sentiment in the stock market (and the economy at large) is all that counts in the US right now.
The establishment is doing all it can to avoid a panic that would have disastrous effects (think Wall Street 1929 or Japan 1988).

Of course inflation is much less severe in their mind, but they won't say so.
They continue to say that inflation is a continuing worry.

But you cannot fight both inflation and recession at the same time.
And when you choose not to choose you put the economy in an intractable situation.
It's called Stagflation. I remember that from my History classes.

For Gold it is going to be perfect until they decide to really raise interest rates in the face of a weak economy.

But we are very far from there now.

Gold and Terror

Today is the 6th anniversary of the 9/11 terrorist acts in 2001. So it might seem an appropriate date to discuss the relationship between the price of Gold and geopolitical risks.

In general I tend to favor the liquidity factor as an explanation for high gold prices, as well as the link with the oil price, but ironically last week took place the most spectacular rise in the price of gold that I have witnessed since 2006.
Was it related to the anniversary of 9/11.

My first instinct was to relate it to the weakness of stock markets (with some lag), the crisis of liquidity and the particularly weak jobs statistics in the US on Friday.
But many see a relationship with geopolitical risk, and from there you might even create whole conspiracy theories about the price of Gold and the manipulation of the market by the central banks.

I think it is fun, and partly true in the short run. But in the long run, the gold price is dependent on more fundamental factors.