The Chart Making The Fed Nervous

Tyler Durden's picture

While Cyprus has been brushed away as a "storm in a teacup" and asset-gatherers stare blankly at their screens pointing at record highs to confirm the "market knows best", it appears something rather important 'broke' that day (and hasn't stopped breaking since). While we have discussed the rather glaring divergences between US equities' exuberance and global equity markets and macro- and micro- data; supposedly the Fed's key indicator (the 5Y5Y forward inflation expectation) has reversed rather significantly. The last two times, forward inflation expectations dropped so significantly, the ECB launched LTRO and the Fed launched QE3. It seems the BoJ's QQE is not having the effect perhaps they had hoped on inflation expectations. Will the Fed have to come to the rescue once again? And how will gold react to that?


Cyprus appears to have stolen the jam out of the reflation-game donut...


as one of the Fed's key indicators (5Y5Y forward inflation) is diverging significantly... suggesting multiple compression (not expansion)

or moar money-printing...

It seems the BoJ's actions are not holding up...


Perhaps this is why the G-20 so subserviently acquiesced to everyone devaluing (or fighting deflation) since if everyone devalues then no harm, right? And perhaps, just perhaps, the gold smackdown was pre-empting this to bring it back to a level that can be defended when the next round of global coordinated money-printing begins - or we move to QE-infinity-squared.


Charts: Bloomberg

(h/t @GreekFire23)

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CvlDobd's picture

My inflation expectations will go up if my governmet promises to keep me safer via domestic drones.

MillionDollarBonus_'s picture

The gold and silver charts just look ugly. All the major moving averages and trendlines have been broken, the MACD is negative, and sentiment is increasingly bearish on this shiny metal. Stackers better brace themselves for more pain, because this is only the beginning of the great precious metals crash.  

firstdivision's picture

apparently you have a hard time differing value dervied by paper contracts, and actual value when not enough exists to cover the outstanding contracts. 

outamyeffinway's picture

Trolls don't know the difference between rocks and nuggets.

Jack Napier's picture

QE5-6-7 coming soon unless they are going to allow default, which is looking increasingly likely with the inventory on the COMEX.

MDB, stackers love these low prices. We get more metal for cheap. Only specuators and debt slaves are scared of losing their fiat currency. Any historian knows that metals are the baseline for valuation, not monopoly money. This is a temporary aberration on the timeline. See Coinage Act of 1792.

In case you weren't around in 2008, this has happened before, and look what happened afterwards. Triple digit silver coming if the COMEX can survive into 2015. If it can't then we won't be measuring metals in dollars, we'll be measuring everything else in metals.

max2205's picture

I bet on full retard printing

nope-1004's picture

Labor force participation chart, Fed balance sheet chart, and AAPL look way uglier than any PM chart.  Of course, it depends on who your masters are:  Each nations' boyz printing and stealing, or a 4,000 year old natural monetary substance that knows no borders, nationality, race, religion.....


CClarity's picture

When The Central Bank of China starts printing, as currency manipulators, then we should see gold sky. I think empty buildings count.

I am more equal than others's picture

MBD are you talking from your ass again....MBD are you talking from your ass again ...I'm getting an echo.... I'm getting an echo    Get your head out of your ass the methane gas is destoying the few remaining brain cells ....  Get your head out of your ass the methane gas is destoying the few remaining brain cells

RafterManFMJ's picture

Rocks are white, come in little vials and generally retail at your local street pharmacist for $10. Nuggets are brown, and come in a pack of six or twelve depending on how strong your stomach is. Hope this helps.

Scro's picture

Do trendlines have any relavence in a manipulated market? I don't think so.

DeadFred's picture

IMHO trendlines are about all that matters in a manipulated market. The whole purpose of the gold takedown was to break $1525. Once below that they will have an easier time manipulating. They can do this for a bit more time... until they can't.

Iam_Silverman's picture

"this is only the beginning of the great precious metals crash."

Personally, I'm waiting for it to get a little bit cheaper before I load up some more.  It's still quite a bit (nearly double) the point where I got in.

angel_of_joy's picture

Your charts are futile (as Borg would say...)

They only cover a paper market.

Paper value is inherently zero anyway...

stewie's picture

I am Bernankus, of Borg.  Shorting S&P is futile, buying gold is irrelevant.  Your financial wealth and distinctiveness will be added to our own.  Prepare to be assimilated.  HFT Unimatrix 424, Grid 116 activated.  Your life, as it has been, it over.

WhiteNight123129's picture

Never ever ever short the market during money printing.

WHen people start to use the money in teh real economy. Inflation starts to tick and Bernanke can not and will not want to print more money.

You have an inflationary expansion, when the inflation becomes a bit annoying, the Fed has to start to raise rate.



JeffB's picture

I'm wondering how they're going to raise rates with so many trillions in debts. It'll crash the economy and make the insolvency of the US all too apparent to everyone.


WhiteNight123129's picture

Here is the deal MDB.

Indian, Indonesian, Vietnamese, Chinese DO NOT CARE ABOUT YOUR CHART!

You are correct in your observations but it does not make the conclusion correct. Why?

As Dalio says, you have to look at who are the buyers and why are they buying.

THe buyers in the West are people concerned (unduly) about hyperinflation. The people in the West could be correct if the off-balance sheet liabilties are not adressed, but it would require a societal change. If the people who were taxed to bail-out wall street are being asked to go fuck off on the promises due to them, how can you maintain at the same time lobbies and war spending? Impossible. So down the road Druckenmiller will be correct. The problem with wacking Gold on the day the JGBs are limit down is that it does affect inflation expectation lower, pushes the treasuries higher and force the Fed to print more. Perversly it vindicates some people saying QE does not create inflation. It also pushes the Gov to do nothing about the middle term issues of societal changes, that is no more entitlements ONLY at the condition that there are no more war spending and not more lobbies. Good luck doing all of that!

In Japan they are correct about their fear of hyperinflation.

In India, CHina, Indonesian, people are coming from very poor backgrounds, with no bank account, with horrible currencies (China in 1948, and up until the 70s).

For them wealth = Gold. And they keep buying while actually their paper will become better quality and their countries are becoming less precarious. It will take 1 or 2 decades before they change their mentality.

In the West, the majority of people are in paper (because they are used to stable paper more or less and not so precarious). So they do not understand gold, however their paper and situation will become more precarious. So bizarelly the countries with paper becoming less precarious buy Gold (premium in Asia) while the people in teh West bash it for the most part and dishoard (discount).

Finally there are teh hedge funds, to which buying and selling Gold is a trade, a paper play if you will, with only a reference which is the 70s.The paper market is not teh market, it is somewhat of an abstraction because it is levered. It is a financial toy for hedge funds.


Finally there are the central banks which are buying Gold to diversify, for now they increase, but they might stop increasing gold and shift their diversification into Yuan as Yuan becomes convertible.

So those are the dynamics, you chart is usefull only for the Western hedge funds considering Gold a paper play. I hope that helps.



PeakOil's picture

Central Banks buying Gold to "diversify"? Hello??

Gold. Extinguishes. Debt.

WhiteNight123129's picture

I know that, I am a promoter of redeemable currency. The only redeemable currency today is the HKD through the bid ask system. There was a bid ask system for Gold against BoE notes through bid at the BoE and ask at the mint.

Hong-Kong is the place to have your money. Interest rates and monetary base dictated by the market. Hong-Kong is the only survivor of the XIX century redeemable currency system. The only problem is that they peg to the wrong thing (USD) but the system in itself is sound.


SubjectivObject's picture

MillionDollarBonus ignore WhiteKnight.

How telling.

But MDB will be early in the next thread.

How telling.

WhiteNight123129's picture

This is your Gold-Dow ratio explained.


The next currency which will have to debase is the EUR.

One could buy Gold at that point maybe, but there is not a need to prevent a disorderly move of sovereign bonds like in Japan.

My own thesis is to sell a bit of the Gold you bought on the wacking day, because it is totally artificial (JGBs halted).

Recycle the proceeds in soft commodities.

After that we move to a period of seemingly ~back to normal~.

The US equity market has a last hourrah because many people not understanding that money is not fixed are still in cash and bonds.

As they feel that ~things are better~ they spend in stuff equities, good and services etc...

But by the same token they trigger a long bear market in bonds and systemic price rises because the dam of idle base money has been breached and it leaks in the economy. Then the only way the Fed can fight it is by doing ~GO-STOP-GO 70s style~, this is what Soros talked about.

Gold will touched its intermediary bottom when ~we are backed to normal~. But this expansion will be driven by money no credit. The end of the bear market in bonds will be when all the base money printed has finally entered the circulation resulting in a new price revolution. It could take years....

PE will contract for years.... And the Fed will stop printing as soon as people cheer that we are ~ back to normal~

Expect Gold to really by bashed then, somewhere around $1,000 and then as the base money from teh damn keeps leaking and leaking and leaking, the interset rates long term rise and rise and rise, and interest rates rise and rise.

The good thing about this inflate away is that inflation makes the nominal GDP rise and taxes, which are a % rise, while the financial assets are discounted at ever increasing interest rates.

Et voila, since your Gold is a present good along commodities, goods and services, it rises with inflation which financial assets shrink with the higher interest rates that inflation are forcing.




Tycer's picture

HaHa. Go to your local PM store or eBay and aske to buy some gold or silver. If they have any to sell, it will cost you the same as it did two weeks ago. Someone forgot to tell the dealers the price went down.

NotAMathWhiz's picture

Not bad, MDB.  How's your new job as the Krugman's 'Wit' going?

MonsterBox's picture

hope so. many of us have dry powder just waiting to use and accelerate the paper vs physical divergence.

holgerdanske's picture

I never get it. Metal in one hand, paper in the other.

The choice is easy.



Slap on wrist!

roadhazard's picture

I have to give MDB a shout out here. He has the perfect rap going on, if he turns out to be right he can say, "I told you so". And if he is just digging for attention and is wrong then most here will think he was just BSing the whole time anyway.

carry on...

LinesOnCharts's picture

Glad someone actually believes more in making money rather than accusing every mistake they make on market manipulation.


As long as gold bugs exist, a downtrend will continue.  Not until panic makes everybody except the passive investors dump will gold reverse.

WhiteNight123129's picture

I actually agree with you, the passive guy buys the Gold for his daughter´s wedding. He does not care really.

Everyone will dump his Gold when there is a last hourrah on stock.

The last hourrah is when people spend the idle cash, the unemployment is lower no need to be scared etc... but in the meantime inflation pciks a bit and interest rates are negative.

That means teh idle money will enter the systems for yeeearrs. and then your gold starts to grind higher, and higher, and higher until all the base money has made its way in the circulation.

As the base money already made its way in teh circulation already?

Hell no.

So first move is devaluation and scare.

Middle move is illusion that we are back to normal.

Third move teh money enters the circulatioon and we have stagflation.

We are probably at the end of the first part and the weak hands will sell.

When we enter in teh third part, this is the third leg.


Clark Bent's picture

That sounds like a script for Marketwatch. 

Buzzworthy's picture

Only the deluded look to chart technicals as evidence of strength or weakness in a "market" corrupted by central bank intervention.  Enjoy your return-free risk, Sir.

Lordflin's picture

Meanwhile premiums are up over 100 percent since the start of the year for physical... It must be nice living in Never Neverland...

ejmoosa's picture

I will know the value of my PMs when I decide to sell them.  I do not, however mark to market.

RockyRacoon's picture

Is the entire upper level power structure delusional... or is it just me?

Turin Turambar's picture

By definition, inflation is an increase in the money supply.  Inflation is already here.  It's an intentional, ongoing monetary policy that has been ramped up since 2008.  People conflate rising prices with inflation.  While there is a correlation, this misunderstanding can be confusing.  Money is non-neutral.  That means that its effects throughout the economy are not fixed.  For example, an increase in the money supply would not result in an across the board increase of say 6% to prices of all items at the same time.  Some prices may increase more than others and at different times.  This is the major reason that the government can tout a low CPI because food and fuel are excluded from their fabricated index.  Exclude the rising prices of items most immediately impacted by an increase in the money supply and presto! the government can propagandize an inflation rate of less than 2%!

Again, don't be confused by the "no inflation" rhetoric.  The very definition of inflation is long-standing Fed policy.

DormRoom's picture

Inflation is correlated to an increasing velocity of money.  Increased money supply is a necessary but not sufficient condition for inflation.

Turin Turambar's picture

"Inflation is correlated to an increasing velocity of money."

Rising prices may be correlated to an increasing velocity of money, but the velocity of money has no impact on the money supply, hence no impact on inflation (increase in money supply).

"Increased money supply is a necessary but not sufficient condition for inflation."

That is not correct.  Inflation is by definition an increase in the money supply.

As per my original post, people conflate rising prices (an effect that may accompany inflation) with inflation per se (increase in money supply).

WhiteNight123129's picture

Not really, the Banking School has it better than the Currency School. It is the printing which creates inflation, it is the using of the newly created money into circulation.

When money is created is initially monied capital (a large bank account doing nothing, or playing with stocks and bonds), when it starts to be spent into the circulation of goods services rather than into financial assets, then you have your inflation.

Long term the printing always ends up in the circulation so in that sense the Austrian are correct, but in the short term, I you print a gazillion dollars and I put that in my bank account or buy stocks, I feel rich but nothing happens on prices.

Next if I decide to spend half of that, ouch!!!

The other thing si that there are two means of circulation or means of payment. Money and credit. If a lot of base money is printed while credit is contracting, one offsets the other.


Lordflin's picture

I think of inflation as water building in a damn... Seems benign enough until the damn breaks... You will get all the velocity you could hope for then...

WhiteNight123129's picture

It is totally correct.

The inflation damn is the base money, as long as it plays in teh finanical markets, it does go into the spending and circulation nothing happen.

What will make enter the circulation, is a sense that things are ~back to normal~ which they can not because ~normal~ was a 25 years boom financed by rising debt over GDP.

When it leaks prices will rise.

Then Soros will be correct, the Fed will have to adopt a ~GO-STOP-GO 70s ~ style like he said in his interview.

Essentially short term interest rates are a bribe for the liquid to stay idle in the damn instead of entering the circulation.

There is little risk of ~break~ outside of Japan. But leak, definitely.

Be patient, when people feel we are ~back to normal~ Gold is totally bashed but at the same time, this is what will make the dam leak.


RaceToTheBottom's picture

Maybe the drones are also there to measure greenhouse gasses?  So many measurements, we will learn lots....

youngman's picture

I am smelling deflation....

Lewshine's picture

ZH ask: "And how will gold react to that"???


The only way gold can react...THE WAY THE FED WANTS!! down to 1000.00 in a hurry! Geez!!

GVB's picture

I'm not sure if you used irony in your post. Let's suppose not, then I don't agree with your statement. Since the recent "smackdown" of gold (which is just a temporarily paper game) these banksters unwillingly fueled the bullion sale tremendously. This will only accelerate the disconnect of gold price as in "paper vs physical". When I see this plunge in gold, my guts tells me that something behind the scenes is really f*cked up. I refer to (1) ABN AMRO not delivering physical gold anymore to their costumers. But settling them with cash ,(2) bundesbank waiting 7yrs for repatriation of their gold. These are facts that we cannot ignore.

Also, no valid reason exists that explains this smackdown. In my opinion, this is a game that has just started its own end. The end of a Ponzi scheme. In essence, it all started with fractional reserve banking & fractional gold lending. Price will meet reality when deliveries cannot be fulfilled. GRTZ

disabledvet's picture

"gold repatriation" coming?

GVB's picture

Earliest within 7yrs (pinky swear!). Next country would probably get its gold back within 12 years, then the following next country within 15 years and so on. And they all promise to arrange the repatriation within that time span. yeah right. Now, who were Obama's guests again in the white house? And where is France intervening. Mali, right. According to Wikipedia, Gold is the 3rd largest export product of Mali. But that will probably be coincidence. 



PeakOil's picture

Gold is not the same as frozen pork bellies after all (pdf download)


"There is no reason to fear that the Fed is pushing the world into hyperinflation.
In fighting the gold price the Fed unwittingly pushes the world into

All the same, it is destroying the dollar and the international monetary
and payments system.