Stocks In Gold Down As Latest Stock Ramp Again Fails To Offset Purchasing Power Loss

Tyler Durden's picture

The now traditional ramp in all risk assets continues to underperform the increasing fund flow into gold: a phenomenon we last disclosed after the most recent FOMC meeting. In other words, the S&P expressed in gold is down for the day. Which basically means that even with today's joke of a market move, the purchasing power lost as a result of now global currency debasement is not offset by some high beta name surging to all time highs. Even basicalier, it means that gold continues to do better than stocks every time there is a central bank intervention. And there will be much more central bank intervention before the location of the next world war release party is officially disclosed. Basicaliest: stocks ramp, gold ramps more. Nuf said.

Here is how Rosie describes this "surreal" situation from his daily notes:

The U.S. dollar has weakened again, which is one reason why the equity markets are on a more even keel today; however, we should be on a lookout for a countertrend rally in the greenback. The long euro trade has become quite crowded and it got a boost this morning from the service sector PMI, which came in at 54.1 in September from an earlier reading of 53.6. Make no mistake, the continent, together with the U.K., are every bit prone to a renewed economic contraction. Just look at Ireland and their banking systems, which are even more of a basket case than in the U.S.A.

A lot of attention is being placed on the Fed’s strong hints of QE2, but very quietly the ECB was buying a huge $730 million of bonds last week — ostensibly the only backstop out there for Irish and Portuguese debt. Now, in a sign of desperation — soon to come America’s way, so it seems — the Bank of Japan cut its policy rate the grand total of 10 basis point to zero on the nose and at the same time said it would establish a $60 billion facility to buy JGBs and other assets. So this helped trigger a rally today in both the Nikkei (up 1.5%) and the JGB market (10-year yield down to 90bps).

At the same time, there were more verbal hints of additional FX intervention to weaken the yen, and a sign that no country wants a strong currency today. The Reserve Bank of Australia refrained from raising Aussie rates today at the policy meeting — the Aussie dollar slipped sharply (by over a cent) on the no-move. The Bank of Canada has followed suit in shifting its rhetoric from “hawkish” to “dovish” in a bid to clip the loonie’s wings, especially given the sudden slowing in the domestic economy.

All sorts of efforts are either being announced or contemplated to resist currency appreciation from India to Korea to Taiwan and now Brazil as well (the latter just doubled its tax on foreign bond holders, to 4%). Hence the allure of gold and silver as currency surrogates with a more inelastic supply curve (we could probably even include platinum in there).

Tin is hardly precious, but global supply disruptions have helped it to a 51% price surge this year. Again, more attention is being placed on the fact that the S&P 500 is up 2% so far this year than on where the real money is being made — commodities in general, metals in particular.

Are currency wars any different from trade wars? We may indeed look back at that comment (“currency war”) by Brazil’s finance minister (Mantega) back on September 27 as a critical inflection point. The fact that nobody talks about this, preferring instead to justify their positions on a bond yield/earnings yield gap, is even more reason for caution. And of course, overnight Bernanke voiced his support for additional expansion of the Fed balance sheet, which means more expansion of the money supply. Whether or not velocity turns up ahead of a new credit cycle remains to be seen, but again, the implications from all this global stimulus is clear: nobody wants a strong exchange rate, and the only certain investment theme that comes out of this, in this era of intense uncertainty and beggar-thy-neighbour currencypolicies, is precious metals.

Indeed, gold just hit a new record high of $1,328/oz this morning (in the aftermath of the BoJ move) for another 1% gain and is now up 21% for the year, and as far as we can tell, the only asset class to have generated a positive return now for 10 years running (longest winning streak since at least 1920, according to Bloomberg). The legendary Jimmy Rogers reportedly told CNBC today that the yellow metal may well hit $2,000 in the next decade (and that may end up being conservative — then again, 4%-plus average returns are not that bad at all in a deflationary backdrop).

Silver, without much fanfare, is performing even better, with burgeoning global demand for solar panels and batteries providing some extra torque from the already solid investment-related buying activity. Even if we are due for a technical pullback, the precious metals complex is in a full-fledged bull market, and not until the world’s central banks have the gusto to start tightening monetary policy, then rest assured that ultra-low gold leasing rates will keep the trend in prices on an upward trajectory.

Meanwhile, stresses are still evident in areas like consumer credit delinquency rates, which edged up in the U.S.A. to 3% in Q2 from 2.98%, stalling a three-quarter improvement. U.S. consumer bankruptcies also rose 11% in the first nine months of 2010, to 1.16 million.

Moreover, for all the talk of recovery and reflation, from our lens, these are next to impossible without credit expansion. The latest data from the Fed showed that in the September 22 week, bank credit contracted $71.8 billion on top of a $13.7 billion decline the week before for the sixth steepest slide over a two-week span on record (and right across the board from business credit to real estate to consumer loans).

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Rusty Shorts's picture

I'm a Rocket Surgeon, split neutrons in my spare time, fucking aye.

Dr. No's picture

Split neutrons?  I kill neurons in my spare time!

LowProfile's picture

I compress real particles out of the virtual quantum soup!

doolittlegeorge's picture

and no one can stop us now cause we're PARTICLES bitchez.

Turd Ferguson's picture looks like the EE has seen enough for today. They've made their first capping efforts up near the high of the day. $1340 appears to be the latest "Maginot Line" for them. Expect it to work, for a few days anyway. Wouldn't surprise me if we've seen the highs for the week. Stay nimble!

EscapeKey's picture

Yeah, but have you seen the move in Silver? Up over $1 today, closing in on 5%.

Oh, and Gold just - finally - broke and is sitting @ $1,341.35 atm. Let's see if it lasts.

Turd Ferguson's picture

Yep, the EE is trying but gold sure looks like it wants to take a run up at 1350. Maybe happen overnight? Still, if it does, you can bet your ass a bunch of fresh, new paper shorts will come out to attempt to bang it back down tomorrow am NY time.

The employment report has all the trappings of a fuck job at this point. Just like last December. Everybody got sucked in to gold and out of the $ and, lo and behold, the Dec employment number came in a little better than expected. The $ began a huge rally and gold went into the shitcan. May not happen Friday but I can't get that old feeling out of my head.

gwar5's picture

I thought you meant silver, you got palladium! It's rocking right now!

truont's picture

"Who let the bugs out?--Who let the bugs out?"


LowProfile's picture

Make sure you trade to gold when the time looks right.  It's pretty, but it ain't money.

truont's picture

Basicaliest: stocks ramp, gold ramps more.

For further explanation, a picture is worth a thousand words:

When will gold top?  About when the SP500/gold ratio hits the red line.  It may dip below that though.


gwar5's picture

Thanks for the chart - nice one's picture

boy, gold up almost 23. dollars. isn't that a pretty big per¢age?

doolittlegeorge's picture

taking out a Fed Chairman.  Gives you a woody, doesn't it.

Biosci's picture

Can you re-post that on a log scale?  Looks like going down to the red line suggests ~ a tripling in price (holding SPX constant).

Whatta's picture

"basicalier" "Basicaliest"


I think I sprained an eyeball.

fiftybagger's picture

Stíbrná Fenas!!!!!!!!

lsbumblebee's picture

This is such a laugh. Gold is on a torrid pace today so they have to continue to ramp equities up ever higher.

hedgeless_horseman's picture

GS, not so much.  For a good time, ask why GS has been far less volatile than the herd.

lsbumblebee's picture

Maybe Lloyd figured he didn't want to make it look too obvious. Then again, when did that ever matter?

Ragnarok's picture

Is there any chance we could get a historical chart of this since the S&P peak in 2007 to present?


Does anyone know where a layman can create charts like this?



firstdivision's picture



How broken are the AUD/JPY and 30's10's2's correlations?

wagefreedom's picture

basically, basicalier, basicaliest......hey look at you conjugating insanity!!

JJ McApe's picture

The price of Gold wil be  $1337 soon!!!11

fuu's picture


I wonder if the elite masters get the joke.

Cognitive Dissonance's picture


And yes, they get the joke because the joke's on us, the so called middle class worker bees. Don't believe for a second that the elites are not buying Gold. They are and as much as they can in physical form. This will eventually become obvious.

WaterWings's picture

And everyone I know will not be thankful I told them so, over and over and over and over again.


With a buddy in a typical, large sports bar section of a family restaurant yesterday. Manager enjoying food a few seats away explains, in what seems to be a routine for him, that his bartendress graduated last year in econ.

My "glee" sets in.

She comes to drop off the updated tab (happy hour) and I refrained from asking why daddy's little girl graduated from a glorious state school with such a fancy degree yet is (un)employed serving alcohol. Instead I gave her the false choice ambush: "So, is Greenspan a traitor or simply an old baffoon?"

Yep. Daddy's girl. She doesn't give a shit about econ and doesn't know what I'm talking about. A nation of slaves.

Cognitive Dissonance's picture

Ignorance is bliss.

And intelligent and well educated ignorance is even more blissful.

redarrow's picture

You may not be able to eat gold but you will always be able to eat if you sell it.

With paper you may eat today but you will may not be able to eat someday soon.

I just dont know how the Fed is able to get away with this magnitude of money printing, its a wonder really. Let alone contemplating the next round of QE.

GoinFawr's picture

"...even basiclier...",

thanks a lot Tyler, that's another notebook destroyed by 'misting with coffee'. Luckily, thanks to 'deflation', they are a dime a dozen these days; the espresso on the other hand...oh well, at least ZH is doing its part to keep us consuming and the economy, uh, recovering.


Cognitive Dissonance's picture

"...even basiclier...",

Tyler has me running to my dictionary at least once a day, but I didn't even reach for it this time. Too funny.

I reserve the right to use it in future articles. Of course, with proper attribution to Tyler.'s picture

oops, my computer is on delay.'s picture

I don't understand some of your replies. I understand water wings is har ass ing me. what are you doing?

Barry McBear's picture

Can anyone suggest a good ratio of ES to GC to trade this?

RobotTrader's picture

Gold and equities are the same trade.

Both are "Risk Assets".

Gold bugs should be rooting for Dow 14,000.

And stock bulls should be rooting for $1,500 gold.

All these gold bugs cheerleading for a crash in the economic system are fools.


UnRealized Reality's picture

I would have to agree. IF Gold is going to be a 1:1 ratio

I'll take Dow 36,000

uberfinch's picture

The difference, Robo, is that people aren't buying gold for risk or speculation.  They are buying gold because they are scared and want to avoid risk.  I am highly skeptical that a collapse in the market will do much other than make a slight dent in gold value.

doolittlegeorge's picture

you misunderstand Robo.  he said the gold bugs should WISH for Dow 14,000.  And of course he is correct.