-- Published: Wednesday, 29 October 2014 | Print | Disqus
By It's a Mystery
There is a very tired mantra out there that gold and silver are the anti-dollar trade. This is reinforced as seen below by whatever machines are controlling the price. Yes, they are machines. These are algorithms devoid of emotion and clearly on auto-pilot as the same rinse and repeat of commercials versus funds shows every week.
What you see below is a one minute line chart of gold and the $/yen. The inverse correlation is perfect. I have chosen this chart because it illustrates how the two reacted in the perfect inverse to US financial reports, durable goods which was negative and consumer confidence which was allegedly positive.
What does US economic data have to do with the following picture? The answer is clearly nothing. However, there is still this absurd notion that permeates global financial markets that gold is an anti-dollar trade or an anti-fiat trade. Sure it is and I am having Santa Claus over for dinner tonight.
Here is some quick math. The US reportedly has 8000 tonnes of gold and at today’s prices that equates to a little over $300B. Forgetting future obligations, the Federal government has $16T in debt and the FED’s balance sheet (LOL) is $4T. But that’s not all folks, since the US$ is the reserve currency (whatever that means) global indebtedness is $150T give or take tens of trillions.
This belief that somehow, someway gold is going to balance someone’s books or the world’s books is the theatre of the absurd. Fiat backed by debt has gone exponential. Gold cannot fix the global balance sheet nor can it fix the US balance sheet. Even if adopted on a ratio basis the numbers are simply too big for gold.
Gold will de-couple from the dollar and become a stand-alone asset. It is not a currency and has no basis in reality trading in inverse lockstep fashion with the $/yen, as it is nowhere near large enough a market anymore. Yet, day in and day out we see the same tired trade.
Now, I have no idea what the price will be when this happens (de-coupling) and neither does anyone else. I do have an idea when this will occur. The process will start when one of the bigger sovereign debt markets starts to crack. Why? Because so far, insatiable demand from the East and a global mine supply versus demand deficit equating to a year’s mine supply has had ZERO positive effect on price. This is only made possible by the chart above. As long as the $/yen gold relationship holds, which is made possible by faith in CBs controlling interest rates, the world belongs to the algos. If faith is lost in one of the big sovereigns, gold breaks for good.
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-- Published: Wednesday, 29 October 2014 | E-Mail | Print | Source: GoldSeek.com