"Transitory" Inflation Tally: Gold, Corn Record Highs, Silver 31 Year High, Brent 2.5 Year High
Yesterday the Chairman said something about inflation being "transitory", and that he would be prepared to act by the time inflation becomes more then just "transitory", which we read as "permanent." So, in other words, by the time inflation is set in, Bernanke will be prepared to act, do we have that right? We hope this is just another Transocean-esque vocabulary disaster, because while we all know how good the Fed is at predicting things, being incapable of sensing grammatical nuances is a Fed Chairman first... which is not surprising: nobody had any clue what Greenspan said most of the time. We just hope Benny's reference was not in the context of a "transition" to a permanently higher "new price normal." Which is maybe how the market interpreted his words: after enjoyed picking apart the irony in the Chairman's statement and once again calling his bluff, the net result is: gold and corn all time high, silver fresh 31 year high, brent 2.5 year high. At some point these prices may revert, and Bernanke will be right. We just hope that by then TEPCO is not in charge of cleaning up radiation ("it's only 1 nano sievert- we swear") from everywhere, not just Fukushima.
Gold jumped to an all-time high above $1,450 an ounce on Tuesday, as peak crude and corn prices fanned inflation fears and a downgrade of Portugal's credit rating drew attention to euro zone problems.
Bullion rose more than 1 percent, its biggest gain in more than a month of range-bound trading. Silver soared to a 31-year peak. Both drew support from Federal Reserve Chairman Ben Bernanke's comments late on Monday suggesting he was committed to completing a $600 billion stimulus program as scheduled in June.
On technical charts, gold broke above a recent double-top technical formation around $1,440 an ounce. This added to a rush of buying triggered by news that Portugal's leading banks threatened to stop buying government debt hours after a Moody's downgrade.
Silver gained 1.8 percent to $39.12 an ounce, after hitting a session high of $39.25. That was the highest since the Hunt Brothers cornered the market in the early 1980s, when silver briefly hit a record of just below $50 an ounce.
Silver outperformed gold in the first quarter, rising 22 percent while gold rose 0.7 percent. The gold:silver ratio, which shows how many silver ounces are needed to buy an ounce of gold, fell to a 28-year low at 37.3.
U.S. corn futures hit a record high on Tuesday, extending their biggest rally in six months as traders feared supplies could run out unless ranchers or ethanol makers cut back on purchases.
Corn has surged more than 15 percent in four days since a U.S. government report showed unexpectedly low inventories as of March 1. Gains slowed on Tuesday, with prices up a 0.7 percent as traders bet that the U.S. Agriculture Department on Friday will further downgrade its end-of-season stocks forecast. But with supplies at their tightest since the 1930s many saw more gains ahead.
"Corn has the potential to go higher and I see spot up to $8.25 to $8.45 and it will happen in April or early May," said Tim Hannagan, analyst for PFG Best.
Other grains have lagged the rally and ended lower on Tuesday, with soybeans depressed by a fourth interest rate rise in China, a move that threatens to reduce oilseed imports by the world's biggest buyer.
For all those waiting for Dennis Gartman's permission to jump in the pool (at all time record highs) it is finally here:
Investor Dennis Gartman, publisher of the Gartman Letter, said gold was free from liquidation pressure once it breached $1,441 an ounce, a level which had triggered selling.
"It appears that gold is beginning a new up-trend after its recent consolidation," said Adam Sarhan of Sarhan Capital. "If gold negates this breakout and falls back below $1,440 to $1,430, one would expect sideways action to continue."
If the preceding wasn't enough for people to consider locking in some profits here, the following from UBS should serve as a wake up call:
UBS said silver investors show no sign of being ready to sell, even though there is a "real danger that silver prices have travelled too fast, too soon." Silver at $40 an ounce appears inevitable in the near term, UBS said.
And so more continue to "predict" the future, and be paid the big bux for their big calls.
Bottom line: if yes QE3: gold goes to $2,000. If no QE3, gold drops to $1,200, then jumps way beyond $2,000 following the deflationary tsunami that will flood the world, crash markets, and push the Fed's hand for one last expoeriment in failed voodoo economics.
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