A subscriber asked me today about my thoughts on the velocity of money, gold miners' ability to make a profit at 500-600 gold and physical demand from investment vs. commercial use. My short answer is that I do not manage the price of gold other than the oft-stated if it goes down in a deflation scare, it should go down less than positively correlated commodities, hence go down less than gold miners' costs. The question is again on the table, just like in 2002 "is this a deflation scare or the real thing?"
The deflationists definitely rule the day as people are worried about newly created money just sitting there in the re-liquefied banks and not getting out to the economy. In fact, as the emailer noted "until it goes out into the economy and changes hands it is just giving banks a lifeline."
Our 62% fib retrace on the gold stocks at HUI 220 has been torn to shreds today and I don 't take this lightly. At some point the market tells you you are wrong and you respect it. Bull markets all over are ended, including the gold stocks. Deflation is now the word of the day as even EWI noted a few weeks ago that the word had still not hit a critical mass. But now, very smart people are all ears even as the Fed begins an inflation regime for real. Inflation expectations? What are those?
Ed Bugos explains the situation quite well in Deflation is a Non Sequitor. These things take time and in the nexus of panic, things are not likely to come unstuck over night. It's why we manage risk, because markets don't give a crap about what you think or think you know. Not in the short term. If this is a real deflation, we are all done. Asset owners of all kinds. Including gold stock owners. I simply don't think that will turn out to be the case, however. Your opinions may be different and I encourage that. What I do know is that unless gold tanks hugely in the face of suddenly recovering industrial commodities, the gold miners have already received a bottom line injection. It's already there.
