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Stock Market Strategy: Carry Trade & Precious Metals Updates

Carry Trade Update:

The AUD/JPY relationship continues to hold support offering comfort to the S&P500 longs. A real battle has commenced right at the uptrend line and horizontal support line (highlighted in yellow) for this key worldwide liquidity gauge. Which ever way this interrelationship breaks will have a major impact on the equity markets. We must not allow the headlines about debt reconciliation either here in the USA or abroad cloud our decision making process. Watching the gauge of worldwide  liquidity and monitoring the health of the credit markets will reveal the true direction of the equity markets. Stay tuned….


Precious Metals Outlook:

And on that sticky topic of debt ceilings and bailouts allow me to simply say any and all resolutions are Precious Metals bullish. Please disregard the initial knee jerk reaction to each ‘we have a deal’ ‘we don’t have a deal’ news story. There is a reason why the word ‘Jerk’ is included in the description and it has nothing to do with reflexes. Plain and simple, ‘no deal’ means financial instability which is rocket fuel for Gold and Silver prices and ‘deal’ means more debt, more paper money printing and rocket fuel for Gold and Silver prices. GoldCorecovered this topic like Oddjob did Jill Masterson with the following chart and post….


Gold To Rise On $14.3 Trillion U.S. Debt Limit Increase – Bloomberg Chart of the Day (click to read)

…However, over the long term gold remains undervalued or at worst fairly valued.

Admittedly, gold has risen by nearly 6.5 times in the last 11 years.
However, in the last bull market in the 1970’s, gold rose 24 times from $35/oz to over $850/oz in 9 years.  Gold remains well below its 1980 record high of $2,400/oz when adjusted for inflation.

The macroeconomic conditions today are even more conducive to gold than they were in the 1970’s.

Most industrial nations such as the US, Japan, Germany etc were creditor nations in the 1970’s.
Today they are debtor nations with the US the largest debtor nation the world has ever seen. The fiscal situation in the US is appalling and deteriorating – with a National Debt of nearly $14.5 trillion and unfunded government liabilities of between $60 trillion and $100 trillion.

As long ago as 2003 we said that this inflation adjusted high price from 1980 would likely be reached and surpassed. We said that at that stage gold could be in a bubble and it would be time to reduce allocations while keeping a core financial insurance holding in gold.

In 2005, we said that the growing property bubbles in the UK, the U.S. and the massive debt levels in the western world (household, mortgage debt and in the banking system) would likely lead to a deterioration in government balance sheets and sovereign debt crises which in turn could lead to currency crises.

We are entering the late intermediate to final stage of this process and the real risk of a currency crises in any one of the major fiat currencies rises by the day.