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Gold, Glitz & Glamour

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My wife received the 2005 holiday edition of the Boston Proper women's fashion catalog the other day. What does this have to do with the financial markets you ask? Anyone? Anyone? Beuller? Anyone? Let's check out the cover of the holiday issue. How about a look at some pages inside the catalog. I understand you may get distracted here, but check out the backgrounds in these photos. Here are some more. See a dominant theme, right down the the models' hair color? Yes, the fashion industry is picking up on gold. For good measure, the other monetary precious metal makes an appearance as well. Happy holidays goldbugs. Break out your party shoes!

Based on evidence seen in daily life, the "barbarous relic" of the past is once again rising in the public's consciousness even as it rises in USD and global currency terms. This dovetails nicely with the assertions of Richard Russell and other noted analysts that gold is entering the next phase of a secular bull market. Still, it is just the adventurous relative few that are asking questions and seeking answers about gold and silver. I thought it interesting that the fashion industry is picking up on the theme. I would think that the style mavens would arrive at the party well before we get Joe Public in da house to announce the market top.

On a more ominous note for short term gold prices, other occurrences recently noted include talk show host Bill O'Reilly pitching Gold Eagles on his show, Jim Cramer picking Goldcorp (GG) and gold being mentioned more frequently in the mainstream financial media, even if only to issue the usual backhanded and grudging complementary dreck. These signs could be bearish for the near term. But as a gold investor, you are not about the near term, are you?

The United States is mired in a noxious environment of inflationary anxiety, political doubt and economic unease. All of which spells a potential gold market correction at some point not too far off. Huh, what gives? That looks like the perfect setting for gold! Yes, it does, but looking at it in contrary terms, even as inflation noise reaches a fever pitch, the real estate sector is tanking (the current bounce is a bear flag until it proves otherwise), crude oil is in correction mode and the Fed is drawing more cash out of assets and into boring old money market accounts, even as broad M3 money supply continues higher (the Fed's own numbers on money supply aggregates down through the years tell the story. The broadest measure, M3 continues unabated).

But deflation is ripe to make headlines again on the heels of the current inflation-hyperbolic public consciousness blow-off. In my opinion, this will not be a time of doom for gold and gold stock investors. This will be an opportunity. Perhaps the final one for some time to come. But that is getting ahead of ourselves. The current gold and silver stock rally appears anything but kaput at this point, with miners faking a break down and bullishly hammering vs. the metal.

Gold still looks bullish against the USD as this chart shows. Even as the dollar has risen in global currency terms, it has broken down when measured in gold. But note the bullish RSI divergence for the buck. It is something to keep an eye on

Meanwhile, a look at a straight USD chart vs. a currency basket shows a potential bearish double top around the 90 area which could spell a short-term dump in the dollar and bounce in the precious metals sector.

To summarize the big picture for the precious metals sector, we have an ongoing rally. Angst and fear have been noted in Goldbugville even as miners and the metals have risen (bullish), and the public is beginning to ask questions. Our country and an increasingly interconnected world are suffering through difficult geopolitical and macroeconomic times and confidence, the primary ingredient of a "successful" fiat monetary regime, is on the wane. BUT, as many "deflationists" note, this is an environment where people will tend to pull back from consumption, increasing claims on cold hard cash. The system is ill-prepared for this as it is an edifice built on consumption by whatever means possible. There will come a moment of truth at which point economies world-wide will either be plunged into the deflationary abyss or once again be "saved" by easy monetary policy. A look at history tells us the likely outcome; Inflation.

No forecast is foolproof, and the precious metals may simply continue upward, leaving doubters to chase it ever higher (for this reason, I am maintaining core positions in favored miners). But opportunities have a way of presenting themselves at unexpected times, and a scary whiff of deflation would be just such an opportunity. Everybody's looking higher where inflation is concerned. That's getting to be a crowded trade.

In the meantime, enjoy the season of gold, glitz and glamour. It could be a long one.

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