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Is The Bull Market On Its Last Legs?

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Remember the Bad News Bulls?

Watch for them in Gold (Bad News = Good News)

Below is an extract from a commentary available to subscribers at www.goldenbar.com on 20th September 2005.

One cannot perceive the "Greenspan Put" and predict deflation (in the quantity of money relative to the demand for it) without contradicting himself logically. Either the Fed can control money supply or it can't; and if it can, it does not have to mean that it has full control - only that it has enough influence to sustain/induce an expansion.

Perhaps my point will be clearer in light of a paradigm that became well known in the nineties: 'bad news for the economy (or profits) was good news for stocks and good news for the economy was bad news for stocks.'

In other words, the market eventually realized that bad news meant an easier Fed, so it went to work bidding up stock as well as bond prices on bad news; and vice-versa. Well, in those days there was a bull market in paper.

Today, we're in year four or five of a bull market in commodities.

In other words, in terms of asset classes, the primary benefactor of the post 2000 inflation policy has been the real assets - commodities and real estate. So why wouldn't this paradigm apply to the commodity bull?

That is, why wouldn't bad news on the economy translate into stronger gold prices (specifically, since it is the metal with the most pronounced monetary qualities) in the same way and for the same reason: because it means that the Fed would loosen the purse strings? Except instead of going into stocks it goes into gold...

Sooner or later in this gold bull market that paradigm will catch on; why not here and now?

Or do you think markets are still hung up about this deflation bogeyman?

Well, certainty is not a characteristic feature of this business anyhow.

Fortunately though, we can be certain that the Fed will inflate again sooner than later.

But I'm confident that this is the beginning of the final thrust of the primary leg that began in 2001; my minimum target is US$500, based solely on the existent technical parameters; but I have a hunch this move - if it is the final thrust as per the model I've been relying on recently - will surprise all of us on the upside. I wouldn't be surprised to see gold US$600 occur as quickly as oil prices shot up from U$50 to US$70 per bbl... 4 months.

As a piece of evidence supporting our contention that gold prices are likely to be resilient in the face of declines in stock or bond prices, or other commodities like copper or oil, or strength in the foreign exchange rate of the US dollar, note that it has been resilient to the pull backs in copper, oil, and the CRB recently; to the strength of the FX value of the US dollar since May; and that it has even outperformed the Dow for almost two months now.

Note also that on Monday's slide in the Dow, USd gold prices leaped to a new 17-yr high.

Small consolations so far, but I believe that this most spectacular final inning has just begun.

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