Filed under: Trader Dan Norcini
Dear Friends,
This is the chart I referenced in my radio interview of this week.
There are several things to note in this chart. First is the direction of the ratio – a strong, sharp, sustained thrust higher which has shattered a level not seen in 30+ years. That tells us that Gold has become the definitive safe haven and that bonds are rapidly falling out of favor compared to the security of the metal. For this ratio to reverse, it would take much higher rates of return to draw capital back into bonds and out of the metal. Where that rate might be is anyone’s guess but suffice it to say, it would be considerably higher than today’s levels. This event would first however wreak havoc on the real estate sector as it would shove interest rates to a level that would prevent many would-be buyers from obtaining loans.
It is good to remember that it took double digit interest rates back in 1980 to finally break the back of the inflation monster. Think about where rates are today and you can see that the Fed has no intention whatsoever of even remotely trying to rein in this wild horse. Even if they did, the current state of the “recovery” would prevent them from so doing.
The second thing to note about the ratio is the SPEED at which it has turned and moved higher. It is accelerating and that tells us that the shift from deflationary fears to inflationary fears is entering high gear among the general investing public. In short, inflation psychology is taking hold and taking hold quickly. You may be hearing all sorts of blather from talking heads and pundits on financial LA-LA Land TV about how tame inflation is but the fact is that this ratio is shouting loudly that all such drivel is BS. The charts do not lie and you can count on them giving you a much clearer picture of where investor psychology is moving long before the talking heads catch on.
Click chart to enlarge in PDF format with commentary from Trader Dan Norcini
This is the chart I referenced in my radio interview of this week.
There are several things to note in this chart. First is the direction of the ratio – a strong, sharp, sustained thrust higher which has shattered a level not seen in 30+ years. That tells us that Gold has become the definitive safe haven and that bonds are rapidly falling out of favor compared to the security of the metal. For this ratio to reverse, it would take much higher rates of return to draw capital back into bonds and out of the metal. Where that rate might be is anyone’s guess but suffice it to say, it would be considerably higher than today’s levels. This event would first however wreak havoc on the real estate sector as it would shove interest rates to a level that would prevent many would-be buyers from obtaining loans.
It is good to remember that it took double digit interest rates back in 1980 to finally break the back of the inflation monster. Think about where rates are today and you can see that the Fed has no intention whatsoever of even remotely trying to rein in this wild horse. Even if they did, the current state of the “recovery” would prevent them from so doing.
The second thing to note about the ratio is the SPEED at which it has turned and moved higher. It is accelerating and that tells us that the shift from deflationary fears to inflationary fears is entering high gear among the general investing public. In short, inflation psychology is taking hold and taking hold quickly. You may be hearing all sorts of blather from talking heads and pundits on financial LA-LA Land TV about how tame inflation is but the fact is that this ratio is shouting loudly that all such drivel is BS. The charts do not lie and you can count on them giving you a much clearer picture of where investor psychology is moving long before the talking heads catch on.
Click chart to enlarge in PDF format with commentary from Trader Dan Norcini
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