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To Be or Not to Be?

A critical juncture is upon us. The USD has firmed relative to its sad performance closing out 2004, many large American firms (AIG, FNM, F, GM & IBM to name but a few) are showing stress fractures, with potentially devastating consequences as noted in Amron. The markets are doing their best to convince everyone who is paying attention to stand aside or in the case of our fine furry friends, the perma-bears, short 'til Dow 6000.

So it comes down to this: "To be or not to be, that is the question" for Sir Alan. Lately the paper gold (miners) market has been saying it is not to be. That we are heading into an extended period of "disinflation" (what a nice sanitized word that is). I'll de-sanitize it; the markets for gold stocks, energy stocks, financial stocks and most other non-dollar forms of paper are hinting at DEFLATION, whereby the masses scramble to pull in their horns, take liquidity out of the system and try to do sensible things like repair bottom lines grossly overextended by a historic credit orgy that, as long as the illusion holds up, has made many feel rich beyond their dreams (and means).

While miner-centric goldbugs feel the heat and top gurus begin to give in to the deflation scenario, the physical metal is trying to flash some bullish signs. Whether or not it makes good on these signs will go a long way toward identifying the Fed's next moves, along with those of central banks around the world. The global financial system is an interconnected daisy chain of paper IOU's. A real deflation can not be allowed to take root because when it would finish its job of unwinding the speculative bubbles in stocks, bonds, real estate, commodities (I realize this one is debatable) and heck, even that old favorite, derivative gambling, there would be nothing left.

So we are left with the question to inflate or not to inflate? Below are two of the many gold charts to ponder when looking for clues. Both have bullish possibilities in the face of all the bearishness currently pervading most non-dollar markets.

Gold sports what may be a bullish inverted head & shoulders pattern vs. the all important S&P 500 broad market index. It broke above the neck line, only to be instantly repelled:

Gold has been inching up vs. the Euro for all of 2005. A sustained break out from this symmetrical triangle would bode well for the idea that a global reflation was under way:

Contrary indications abound. Broad indexes are bearish and gold stock indexes are über bearish. Gold would try to lead to the upside, but it certainly has not led to the downside to this point. It is simply a critical juncture for the markets.

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