This post was written by Minyanville contributor Lance Lewis.
With gold rallying again today and the bond market continuing to slide with the dollar, I thought it might be worthwhile to pull out the gold/bond ratio once again and see where we are at with respect to this particular indicator signaling inflation or deflation (see the chart below).
I'll leave you to draw your own conclusions, but rather than "green shoots" of a US economic recovery, I merely see the "green shoots" of inflation developing.
Sadly, those "green shoots" of inflation have nothing to do with a pickup in the US economy but rather everything to do with both the Fed's continued debasement of the dollar and the fact that China's economy is roaring back.
Just wait until the market begins to figure out that the US is not only going to have a recession to deal with but an inflation problem to deal with at the same time as well. It's not going to be a good day for US stocks when that moment of clarity occurs.
Click here to enlarge.
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Reader Comments (Page 1 of 1)
5-07-2009 @ 5:50AM
Dan Barnett said...
The gold-inflation-Federal Spending argument has been run since the early 1980s. Ain't happened yet but if you predict something long enough the odds do turn in your favor.
5-07-2009 @ 7:00AM
sgentilejr said...
Yes, higher gasoline and crude oil prices now can cause inflation. Yet at times like now when workers wages are not increasing,
any inflation will be very temporary, since consumers with already empty pockets and too much debt cannot purchase enough to cause higher inflation.Deflation is more likely over the long run going forward than inflation is.