Global Macro Monitor

If you are thinking about giving the sweetheart some gold for Valentines Day,  you may want to wait a few days.  This is one ugly chart and shows gold — in the form the GLD ETF — hanging by a thread.

Gold lives and trades in many dimensions as we wrote last June:

At any given time period  gold will assume any one of its multiple personalities based on a fundamental story and trade as:  1) a safe haven;  2) an inflation hedge;  3)  a commodity; 4)  a store of value against central bank balance sheet expansion;  5)  an alternative currency;  6)  central bank reserve currency;  7)  a diversification asset;  8)  an Armageddon hedge;  and/or 9) all of the above.

The key for traders is to determine which dominant face it has put on and ride it until perceptions of the fundamental story has changed and then turn it around.

Gold’s recent performance has been very disappointing given that the Fed and BoJ have stepped up quantitative easing.  This is very short-term bearish, in our opinion.

We did come across something over the weekend that may explain gold’s dismal trading action.   The guys at CSLA note,

Wow!   They seem be thinking the world is setting up for another emerging markets balance of payments crisis — think the Mexican peso or the Tequila crisis of 1994/95 and the Asian Contagion of 1997.

Clearly the Mexican peso crisis was the culmination of the Fed tightening in 1994 and global bond market debacle.    We think it’s a stretch to see something similar,  but you never know.

Outside of China, we suspect and hear that emerging markets are intervening to prevent their currencies from appreciating thus creating reserves.    But China is the big nut.

(click here if chart is not observable)