Despite Recent Weakness In Gold, Revaluation Spike Is Coming

"Turk: “I think the following chart puts several key markets in their proper perspective, Eric.  It shows the correlation between the Fed's balance sheet, S&P 500, gold and crude oil.  This is a base-100 chart that plots the relative movement in these assets at the close of each week from March 2009, which is when the Fed announced its first QE program (see chart below).



There are several points to make about this chart....

1) When central banks print money by growing the size of their balance sheet, the currency they are printing gets debased.  Another way of saying that is that asset prices rise, which happened for gold until January 2013 and oil later in the year, but the S&P 500 kept rising.

2) The S&P 500 closed at a record high Friday for the same reason the Fed’s balance sheet is at a record high at just under $4.5 trillion - money printing.  The S&P is not rising because of good economic conditions.  Regardless of what the government central planners are saying, the economy stinks because the labor force is shrinking and is still well below the 2007 peak.

3) On a relative basis, gold and oil look very undervalued.  Both should be rising along with the S&P 500, as they did up until 2013.  But oil is weak because demand is falling because of the weak economy.  And gold is weak because its price is being manipulated by central banks.

4) Finally, look at the green line carefully on the chart above.  This line shows the growth in the Fed’s balance sheet, and growth is coming to a halt as the Fed winds down QE. 

Point #4 is particularly important.  It suggests to me one of two things will happen:  Either the stock market will tank as it did in 2011, or the Fed will renew its QE program.  The Fed will do this to foolishly keep printing in the hope that infinite money creation will jumpstart a sick, debt-laden economy that government central planners have turned into one of borrowing and spending, instead of saving and producing..."

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/9/10_Despite_Recent_Weakness_In_Gold,_Revaluation_Spike_Is_Coming.html