The big picture view here at pay attention has been that inflation is yesterday’s news, that will soon be forgotten as the last of the bubbles have popped in series. The dollar rally is key here, but money is not being attracted to the dollar by higher rates, as is traditional. Rather the dollar and bonds are going up together. That’s the sign of the unfolding deflationary forces. The first chart this evening is the euro, who’s decline has accelerated sharply this week.
click chart to enlarge
And here’s the bond chart, with bond prices going up and rates down during this dollar rally. Today bonds retraced their entire decline of the past three weeks.
click chart to enlarge
Gold is dropping in this environment. At the beginning of this week I argued that the inflation complex markets were due for a pause in their larger trends. I was wrong and the fact that gold and oil have continued down unabated is evidence of how strong these larger trends (gold down, oil down, dollar up) are. Hence, the specter of deflation title.
Here’s the weekly gold chart. Gold is now only $30 from the May lows at 846. A break of that low will force many metals’ participants to turn more bearish.
click chart to enlarge
Ironically, as weak as crude oil has been since the forecast July 11 top, oil is now showing some signs of bottoming, unlike gold and the euro. Another positive RSI divergence was registered today.
click chart to enlarge
3 responses so far ↓
1 clausberlin // Aug 8, 2008 at 3:27 am
Chris, besides your report of 06-29-08 you don’t talk about SC dates. Why is that?
Are you more short term oriented now than your work used to be?
Regards
Claus
2 deuxsous // Aug 10, 2008 at 6:15 pm
Chris,
We both nailed the crude oil top pretty darn well. http://twocents.blogs.com/weblog/2008/07/bonds-galore-and-more.html
But I’m not so sure about the deflation part. My Long Wave stuff is still committed to another 10-15 years of the inflationary trend. I do think we are in for perhaps the steepest and longest correctional interlude in the bull market, but nothing like 1980 to 1999/2003 in my opinion. Gold is five months past its top already and could go a year. And crude oil could go under 80 for sure, but long term demand and long term under supply are still out there in my personal opinion.
Cheers,
Tom
3 deuxsous // Aug 10, 2008 at 6:42 pm
The blog post cited above is a more on the prospects for a pullback. This one is more specifically on the energy complex: http://twocents.blogs.com/weblog/2008/07/high-yield-energy-stocks.html
My site is directed more toward income than toward capital gains at this point in my life, so I phrase my opinions these days more in terms of economics than in technical analysis . Many of my readers are not technically orientated, nor need they be. But I still do the technicals.
You must log in to post a comment.