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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polo007's picture

According to Duke University:

http://www.scribd.com/doc/136922918/The-Golden-Dilemma-Duke-University

The Golden Dilemma

Gold objects have existed for thousands of years but for many investors gold has only recently become a tradable investment opportunity. Gold has been described as an inflation hedge, a "golden constant", with a long run real return of zero. Yet over 1, 5, 10, 15 and 20 year investment horizons the variation in the nominal and real returns of gold has not been driven by realized inflation. The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average. Given this situation is it time to explore "this time is different" rationalizations? We show that new mined supply is surprisingly unresponsive to prices. In addition, authoritative estimates suggest that about three quarters of the achievable world supply of gold has already been mined. On the demand side, we focus on the official gold holdings of many countries. If prominent emerging markets increase their gold holdings to average per capita or per GDP holdings of developed countries, the real price of gold may rise even further from today’s elevated levels. As a result investors in gold face a daunting dilemma: 1) embrace a view that "those who cannot remember the past are condemned to repeat it", there is a "golden constant" and the purchasing power of gold is likely to fall or 2) embrace a view that "this time is different" and the "golden constant" is dead.

The Carbonator's picture

I'm with you guys on all the Gold and Silver.  But it doesen't do much without a closet full of Lead.