I continue to hear from many readers about the unprecedented rally in the US equity markets that as of today has taken the Dow to within less than 200 points of its all time high and the S&P 500 to 5 year highs in spite of what nearly everyone I have spoken with believe is a lackluster economy.
It is the result of money flows - think about the enormous sums of liquidity that have been created by the actions of the Federal Reserve (not to mention the ECB and the BOJ). Then think about the abysmally low interest rate environment that this CB intervention has forced upon the economy. Then think about all that money looking to find a home where it can obtain YIELD.
What does that leave? Answer - equities.... Commodities (other than some select ones) are still concerned that the rate of economic growth (while improving globally) is certainly not leaping but is rather muddling along in the right direction. While that is all well and good, it is not enough to generate robust demand across the entirety of the commodity sector. Commodities in that sense have become a "stock picker's Market". In other words, traders/investors, rather than just blindly rushing pell mell into the entirety of the commodity sector, are being very selective as to which particular commodities or category of commodities that they want exposure to.
Gold is struggling in this environment because government inflation figures (which no one believes) are still very tame. Throw in the fact that the talk in the halls of economic power is that the worst ( the US credit crisis, the European sovereign debt crisis, Chinese slowdown fears, BOJ deflation fears, etc.) is behind us, and that is denting safe haven buying in gold as well as safe haven buying in the bond market.
As a matter of fact, bonds are increasingly being seen as a suckers's bet and that has the hot money leaving low interest rate paying bonds and flowing into equities to take advantage of double digit gains.
I have no idea where this will lead us but as long as the current sentiment is so lopsidedly wildlish bullish, equities will work higher and gold will remain rangebound. With the "worst is behind us" talk increasing, it will take a genuine return to fears of inflation emerging to get the gold market excited again.
Right now gold is completely focused on the extent and duration of the Fed's QE policy. You might have noticed that when the initial jobs number hit the wire this AM, it was considered very weak and thus got the gold bulls revved up on the idea that it would keep the Fed in the QE game for the rest of 2013 at a bare minimum. Then, not longer after that, the ISM's Manufacturing Index reading came in at a much higher than expected 53.1 versus 50.2 in December. The number was so much stronger than expected, that it immediately sent shivers down the backs of the gold market rekindling fears of a sooner-than-just-expected ending to the QE4 program. Gold surrendered half its gains in the matter of a few minutes.
That is where we are currently.
Keep in mind that all of what we are seeing has been accomplished by MONEY PRINTING IN UNPRECEDENTED amounts. Apparently, everything that we have ever learned about economics and currency creation out of thin air is wrong. Permanent prosperity can indeed be created out of thin air; recessions/depressions are obsolete and will never occur again; ever-increasing amounts of debt have no impact. The Central Bank ALCHEMISTS have won.... FOR NOW....