Reflation trade

16/06/2010 by Philinje.

Yesterday there was more strength in the markets overall, and it looks like gold is participating once again in the reflation trade. This means as the dollar goes down, gold goes up.

So yet again, it looks like gold will benefit from rising or falling markets. Amazing! In a sense that has been happening all along, over the past 10 years, because currencies are being debased. No matter which particular currency is rising or falling, gold on the whole has been going up.

Here’s a fascinating article from James Turk, founder of GoldMoney. He is obviously biased, but the chart speaks volumes:

http://www.fgmr.com/signal-from-the-stock-market.html

The chart in this article shows clearly how Quantitative Easing by the Fed has been closely correlated with movements in stocks. It’s uncanny how close the relationship is.

The current bounce may go a bit farther and then various analysts are worrying about a massive decline into August. But some are thinking we’ll see a modest climb over the summer, and then a mild decline this fall. It might depend on QE. If the Fed reinstates QE, expect markets to rise. And we hope in that case gold will benefit from the reflation trade.

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