Morning Gold Fix: June 14, 2010

Tyler Durden's picture

Courtesy of www.fmxconnect.com

Last week in an appearance before the House Budget Committee Federal Reserve Chairman Ben Bernanke was asked what he thought about the recent highs in gold. Bernanke replied that he didn’t really know but suggested it wasn’t from inflation, noting “the spread between and nominal and inflation-indexed bonds, the break even, remains quite low, suggesting the markets expect about 2 percent inflation over the next 10 years.”

He further elaborated that “Other commodity prices have fallen recently quite severely, including oil prices and food prices. So gold is out there doing something different from the rest of the commodity group.” Which we think is silly. First, as a rule, Bernanke rarely says he “doesn’t know” unless he knows and doesn’t want to say. 

Second, Gold is not a commodity (at least lately); it is a competing currency.  I thought Ben looked like he was swallowing a canary when he answered that question. To quote Jim Rickards, of LTCM bailout fame, one of many who feel the same way, “This will help end confusion: Gold's not a commodity. Gold's not an investment. Gold is money. If you'll need money in future, get gold.”

To add: the spread between TiPs and Treasuries is not representative of inflation, it’s representative of CPI expectations, a data point managed by the Government…Argentine redux coming soon perhaps? Our own explanation for why gold and Bonds are strong simultaneously lies in the belief Bonds are being bought for liquidity, not safety. Sovereign debt of ANY nation is not a safe haven. Right or wrong, the world is getting short governments, and the U.S. may be the tallest pygmy, but it’s still pretty short. People are buying U.S. bonds as a flight to LIQUIDITY. They are buying Gold as a flight to safety. There is a difference.

Technicals:

Resist: 1240.64-1242.47 ST Trend: Up Swing Target: 1272.60 (1230.20) Supprt: 1219.95-1216.77 Swing Point: 1234.19 Range Reversal: 23.42

August gold was down 2.1 to $1228.1 per 100 troy ounces as of 7:59 AM EDT, this morning. The June U.S. dollar index was down .992 to 86.525. July platinum was up 21.0 to $1556.0 per 50 troy ounces. Silver was up 17.9 cents to 18.410.

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-Elizabeth Thawne