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Is The Gold Move Signaling Deflation?

|Includes: AGQ, DGP, SPDR Gold Trust ETF (GLD), SLV
This morning, every major stock index is coming under pressure. Recently, when the stock markets decline the prices in gold have moved higher. Today, gold is selling off very sharply trading lower by $65.00 to $1739.80 an ounce. The SPDR Gold Shares (NYSE:GLD) are trading lower by $5.45 to $168.15 an ounce. This is one of the rare occasions that gold and the stock markets are declining together. It seems that the safe haven trade is the U.S. Dollar, and U.S. Treasuries at the moment.

The last time gold and the stock markets declined together this sharply we have to go back to 2008. This time around it may not be exactly the same scenario, however, there are many similarities. In 2008, the stock markets declined as deflation in the major stock indexes took hold. Deflation could once again be taking hold despite all of the massive central bank intervention.

The central banks including the Federal Reserve always want to create a controlled inflationary environment. After all, they are in the business of creating money out of thin air. When deflation takes place it will take everything lower including the precious metals. When prices decline enough investors will then step in and pick up assets that they feel have value, This is why deflation is not such a bad thing, unless you are a banker of course. Deflation will make goods cheaper for everyone. At this time, gold looks to be signaling deflation. Traders should remember, when and if the central banks create another quantitative easing program gold will be the first asset class to trade higher again. Until that time, gold could deflate with the rest of the stock markets around the world.

Nicholas Santiago