One Heart and Two Minds About Gold

I admit I am torn on the gold trade.

Since Feb, it has been bouncing between the 1550-1650 range on the news of Soros and Paulson bailing out versus central banks loading up. Indian savers are not giving up on the metal but Chinese imports from HK have slowed.

The world has polarised into the Love Gold – Hate Gold camp and opinions are increasingly forceful on both sides.

I think we are headed for a showdown here.

Gold has broke the stubborn 1,600 USD resistance and is now at a stalemate.


On a correlation front, Gold has failed to correlate with Risk On as much as it used to. For the first 3 months of 2013, Gold has a negligible correlation with the S&P 500 compared to its high correlation over the past 2 years as a QE hedge.

The implication here is severe. That Gold has resumed its safe haven status once again.

From overnight darling to nobody’s child, I realise that Gold has fared badly in the past year against most currencies except for the Indian Rupee, Japanese Yen, Argentine Peso (inflation 26%) and the South African Rand.


I was lucky to put on some XAUEUR early at low 1200’s and it is gaining some clout  ground but EUR 1250 appears to be a resistance.

The bears are getting loud again, calling for the death of gold but their voices are lost in the cacophony of Cyprus news and stock bulls.

My reason for buying gold is simple. I am a believer of the debasement game or currency war or money printing as we call it. By that it means I do not believe in the CPI logic.  CPI does not work when you spend 30% of your income on your housing mortgage.

I have pondered over it and lamely concluded that the world has only 2 economic stories now – the pro Growth or the Bankruptcy story. There is no in between. Inflation is not a feature until we examine what we define inflation as. Inflation as in the price of a toothbrush is not kicking its heels yet. (Not until the realisation that the minimum wage in Indonesia is about to rise 40% and Malaysia too).

But notice that every policy appears to be geared at bringing the stock markets up to its historic highs which the Dow Jones has successfully achieved. If not stocks, then its housing with the exception of Asia. This is debasement at work. Asset prices are soaring, even in the US where it all had started and prime London property prices are leaving the rest of the field behind.

Worse still, policy uncertainty is at an all time high. Decision makers are dabbling with all sorts of funky policy changes to fix short term pains, experimenting the economy away just to make sure their term ends on a happy high.

It says to me one thing. Money has no where to go and the faith in money has been lost.
People are just afraid to admit it because it destroys the conceptual framework of the economy and global economics.

The XAU/XAG ratio is a widely watched and traded instrument. It suggests the amount of risk appetite in the marketplace. For all the bravado in the equity market, we are not seeing any signs of Silver demand that connotes a full fledged recovery.

XAU/XAG is threatening to break higher after taking out the Ichimoku.

So, I decided to take a break and watch Life of Pi.

First, faith restored. Gold is higher now and broke the 1610 barrier.

Second, a bit of that profit must go into buying a new TV so I can appreciate the graphics better. My TV is 9 years old and only a 32 inch but custom fit into the wall.

Third, I think 1.650 is next.