Gold's Still Shining...Despite Skepticism.

Last Friday, gold was moving to another new high for the week in dollars and making another new all-time high in euros.

Any move that puncture through $920 (spot) will likely trigger a mad dash of short covering from anyone unlucky enough to have shorted the metal last week at an all-time high. My own near-term target remains at $1000+.

I'd also noted that the gold shares (based on Friday's sharp move up) appear to be finally realizing that gold's move up to all-time highs is not just a weak dollar phenomenon. After seeing it rally in the face of the strong move up in the dollar index in the wake of the ECB appearing to indicate that it was now ready to join the global printathon started by the US Fed and sacrifice inflation-fighting in favor of trying to stimulate growth.

There was never a doubt that all the G-10 nations would eventually turn to the printing press in the wake of the US housing bust and the US recession that is already underway, and that's why gold is rallying in all these confetti currencies. What's the result going to be? The dreaded -Stagflation!

As for the gold shares, they have lagged the metal over the past few weeks based on this "disbelief". They will come to believe soon enough though! Anyone buying the gold shares over the past three days is now "in the money" when looking at all the major gold indices.

As far as the shares lagging the metal like this, we saw something very similar to this action when gold crossed $500 back in late 2005. The shares lagged and lagged and then suddenly "caught up" as people realized that "something was different" in gold. The same will happen here now as people watch gold blow back through its $936.92 all-time high and onward to over $1000.

Happy Chinese New Year!

May this spring brings joy, prosperity and good health to all..

The Fed has just 300 basis points left to play with...

I think we are about to see a massive shift in sentiment which will be manifest in global markets from stocks to bonds to currencies. This shift could be the result of a financial crisis, or could simply arise from a 'final straw' being laid atop the mountain of financial problems thus far.

Either way, the upshot will be to spur fears of deflation. Witness the relentless obsession with the Fed, as if whether they go 50 or 25 actually makes a difference?!!

At some point, investors will do the math. Hmmm... if the financial institutions and bond insurers are already unable to function, with delinquency rates barely up from record lows, what's going to happen when things really get bad ?

On the bright side, at least the fed is trying to get the credit wheels turning. In the Eurozone the ECB is taking their economy on a Thelma & Louise roadtrip. Pedal to the metal, they are speeding straight over the clif.

Again, all of this seems patently obvious. But talking about deflation in the abstract is very different from living it. From a macro trading standpoint the standard relationships will break down. Many already have. Like bonds and gold, the yield curve... and so on. I expect the euro will soon begin to trade inversely with rates (eg., the tighter the ECB the weaker the euro, because it virtually ensures they completely disintegrate). Meanwhile, in the US, the Fed, running out of room to cut short rates, will shift to the long end and US treasuries will move well below 3% evemtually. This isn't a statement about the value of Treasuries. Heck, there wasn't any value in Treasuries!! But that's not the point.

Stay tuned, because things are about to get very, very interesting.