Gold (Leading infation policy indicator) vs. Copper (Lagging inflation effect indicator):

The mainstream financial media fails to address a critical point regarding inflation. Specifically, when inflation is referred to as "showing up in oil prices" or as a result of rising real estate or other assets, a fundamental reality is being lost. That reality being that inflation is the creation of too much money and credit that finds itself chasing various asset classes. Inflation is always the increase of "money" aggregates in relation to assets.

Here at Biiwii.com, our thesis has from the beginning been that the global economy is built on boom/bust dynamics and that these dynamics are predicated on monetary events. This is why we watch the dollar and competing currencies closely and it is why we discriminate when looking at "the metals". Specifically, in so far as gold is considered a monetary metal, we discriminate it from the entire spectrum of commodities which of course gain the eventual benefits of loose money policy or liquidity-producing market dynamics. Why? Because although inflation is likely to find its way into most commodities eventually, gold has proven to be the up-front watch dog.

Here is a chart that shows gold's lead in sensing the amazing round of inflation that eventually created a new commodity bull market. The chart shows a comparison of how the star industrial metal, copper, faired during the process. It lagged by nearly 2 years! If one tracks the more general CRB instead of copper, a lag of approximately 6 months is seen there as well when compared to gold.

So why are goldbugs so attentive to the gold price and leading gold mining stocks at this critical juncture where Fed policy appears to be at a turning point? The chart explains a lot. Keep an eye on highly visible gold stocks like Goldcorp (GG) and Newmont (NEM) as well as the bullion ETF's (GLD, IAU) along with Central Fund of Canada (CEF) and Central Gold Trust (GTU) for indications on the next round of liquidity.