A down spike like the one we are currently on represents a time when a deflationary backdrop is in force as the curve would have us believe that monetary policy is not particularly accommodating. I believe what is actually happening however, is that expectations are simply getting back in line from last spring's inflationary hysterics (see the April spike below).
As for asset markets, look at the ride the silver bugs have been on. Just last spring silver blew off to 50 amid the inflationary hysteria noted in the previous post. Things were so bullish and the public so convinced of an inflation problem that emotions were running very high in those directions. As NFTRH noted last summer in the wake of the silver blow off and during the $300 rise in gold that resulted from the European debt panic, this was all unhealthy activity that longer term precious metals bulls needed to protect themselves against (through risk management).
The current near term state of Ag is unclear by my read. We had a downside target of 'just under 30', which was close to a no brainer after the mania blew out. The next targets were 'low to mid 20's' (check) and 20, which is long term support, not fully illustrated by this daily chart. It is still open, but...
If you take in the theme of the previous post, you may come away with a question that asks 'is inflationary 2012 coming now or after a decline to the bottom line of the huge macro channel (on the 'continuum') and one more deflationary dunk?' With silver you could ask 'has it turned up for real now or will it take one more severe decline to the massive support that resides at around 20?'
The same can be asked of many other asset markets and commodities.
You know I am not often a raving bull about silver, but the chart above is very bullish. It just depends on which support target the bullishness is projected from. Sentiment in the precious metals flat out stinks and that is of course, a bullish indicator.
The Wizard meets with his henchmen and women today and I am sure there will be some sort of expectations management in their statement. Given how (predictably) strong the broad market has been of late, I would not be so sure what comes out of the macro manipulators' PR is going to sound overly dovish. In light of a potential bottom in long term T bond yields, I wonder how today's FOMC PR is going to play? Will it enable, contradict or disable the current theme?
There are a lot of moving parts in motion right now. You have got to love the markets. Do you love the markets?