Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Rip the Face Off the Bears Rally! - 22nd Dec 24
STOP LOSSES - 22nd Dec 24
Fed Tests Gold Price Upleg - 22nd Dec 24
Stock Market Sentiment Speaks: Why Do We Rely On News - 22nd Dec 24
Never Buy an IPO - 22nd Dec 24
THEY DON'T RING THE BELL AT THE CRPTO MARKET TOP! - 20th Dec 24
CEREBUS IPO NVIDIA KILLER? - 18th Dec 24
Nvidia Stock 5X to 30X - 18th Dec 24
LRCX Stock Split - 18th Dec 24
Stock Market Expected Trend Forecast - 18th Dec 24
Silver’s Evolving Market: Bright Prospects and Lingering Challenges - 18th Dec 24
Extreme Levels of Work-for-Gold Ratio - 18th Dec 24
Tesla $460, Bitcoin $107k, S&P 6080 - The Pump Continues! - 16th Dec 24
Stock Market Risk to the Upside! S&P 7000 Forecast 2025 - 15th Dec 24
Stock Market 2025 Mid Decade Year - 15th Dec 24
Sheffield Christmas Market 2024 Is a Building Site - 15th Dec 24
Got Copper or Gold Miners? Watch Out - 15th Dec 24
Republican vs Democrat Presidents and the Stock Market - 13th Dec 24
Stock Market Up 8 Out of First 9 months - 13th Dec 24
What Does a Strong Sept Mean for the Stock Market? - 13th Dec 24
Is Trump the Most Pro-Stock Market President Ever? - 13th Dec 24
Interest Rates, Unemployment and the SPX - 13th Dec 24
Fed Balance Sheet Continues To Decline - 13th Dec 24
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Seeds Of Change Growing

Commodities / Gold and Silver 2013 Sep 27, 2013 - 06:59 AM GMT

By: Aden_Forecast

Commodities

It's been a crazy month. So much drama and so much uncertainty ... it all left investors somewhat shell shocked.

Shake, Rattle & Roll

With the Fed stating that it'll wait before cutting back on its quantitative easing (QE), it again rattled investors, raising many questions...


Memories of 2007-08 resurfaced. As you'll remember, the credit bubble burst, resulting in the collapse of Lehman Brothers and a severe crisis, which took the economy to the brink of a depression.

So yes, investors are nervous, and with reason...

While showing some improvement, the economy is barely scraping along and all the Fed's efforts haven't done much.

Over the past year, economic growth has been the slowest ever recorded, except for when recessions were in force.

One important reason why is because banks aren't lending , despite the Fed's easy money. As you can see on Chart 1 below, loan growth has been anemic compared to what it was at the end of previous recessions.

Loan Growth at US Commercial Banks

Instead, banks have built up their excess reserves at an astounding rate, from zero in 2008 to $2 trillion in 2013!

In turn, this has resulted in an ongoing decline in the velocity of money (see Chart 2 below).

Velocity of Money (M2V)

Basically, this means that money isn't changing hands, which is not a good sign because the velocity measures the demand for money. This is deflationary.

Some Good News

On a brighter note and thanks to the Fed, we're seeing some positive signs in the markets. The stock market, for instance, has been on the rise, telling us that better times lie ahead.

Interestingly, gold and bonds are telling us the same thing and we'd be foolish not to listen (see Chart 3A).

GOLD - Better Than Bonds

Gold Better Than Bonds

This chart is so important we really want you to take a hard look at what it's telling us.

Very simply, this ratio chart compares gold to bonds. When it rises, gold is stronger than bonds. And when it declines, gold is weaker than bonds.

We call this our inflation-deflation barometer. Why?

Gold tends to rise during inflationary or generally good economic times. That's why the ratio's been rising over the past decade.

The two exceptions were in 2008 and 2011, which were periods of recession and slow growth. In both cases, the ratio declined because gold was weaker than bonds.

In other words, bonds usually outperform gold when the economy is weak and/or deflationary forces are more dominant.

This has clearly been the case over the past couple of years with the economy on thin ice.

So where do we currently stand? We're happy to report the ratio is again on the rise. Plus, the ratio's leading indicator has surged higher, signaling the ratio is going to rise further.

A Sign Of Better Times Ahead

This means the deflationary forces we've been living with in recent years are going to be left in the past.

It's telling us the economy is going to improve, probably fueling some inflation, which at this point would be a welcome relief.

And of course it means that gold is going to be stronger than bonds.

Inflation On The Horizon

Many people haven't noticed but producer prices have been creeping up over the past three months. Whether or not this marks a change to higher inflation remains to be seen but our inflation-deflation barometer suggests that it could.

Keep in mind, the potential for higher inflation is well in place. Bank reserves are massive and normally, banks only keep about 10% of their money in reserve.

So once banks start lending, inflation could pick up quickly as money moves out of the banks and into the economy.

More Bubbles Upcoming

Like the tech bubble and the real estate bubble before this, the Fed has essentially created yet another bubble.

We'll soon see how this unfolds but the markets are giving us a sneak preview. And unless we're reading it wrong, we should be in for some real changes. Stay tuned.

By Mary Anne & Pamela Aden

www.adenforecast.com

Mary Anne & Pamela Aden are well known analysts and editors of The Aden Forecast, a market newsletter providing specific forecasts and recommendations on gold, stocks, interest rates and the other major markets. For more information, go to www.adenforecast.com

Aden_Forecast Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in