Economic Review

4/12/2010

Why is it that the price of Gold is approaching an historic high again?

Over the past few weeks, the hype has been in full force regarding better times ahead and a strengthening of the US economy. Much of this gained momentum given the last employment report which was spun to the bullish hilt given the slight increase in non-farm payrolls. The other major source of positive spin has been the slow but relentless gains being posted in the US Equity markets as the Dow Jones closed just a few points below the 11,000 mark.

Despite this return to Goldilocks nonsense, there remain a few rather noteworthy indicators that continue to flash major red flags. For some reason the Federal Reserve is maintaining near zero percent and negative real interest rate policy and has even suggested that higher rates could derail the economy. But perhaps the most interesting turn of market events has been the substantial rally in Gold prices despite a strengthening US$ (that is until the Greek bailout hit this weekend).

The potential of a marked rise in US inflation has been consistently been poo poohed (that’s PhD jargon) by policy markers. Despite this, Gold continues to be a darling of the markets. Let’s see, no inflation and a Goldilocks economy with higher Stocks….why is someone (or should we say many) scooping up this shiny asset? Could it be that there are some very disturbing imbalances in our currency financial system that can quickly render this Goldilocks…a wicked witch economy. You got that right. Just keep an eye on who’s participating in our Treasury auctions.

Stephan Kudyba (MBA, PhD) THE MARKET DOCTOR

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