Lower Low in Gold Likely Supportive of Carry and Stocks
With the old “Carry Trade” the new asset class of choice for institutions, we’re seeing a shift in previous relations. With this shift the carry trade, and stock-indices, which have been following them, will likely benefit from the current sell off in gold. Even the staunchest gold-bug is disappointed that the yellow metal didn’t move above $1,000 in February and return to its ancient status of currency of last resort. Instead it put in a triple top at $1,000 and after today’s sell-off, shifted the weekly trend lower.
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When it comes to volatility, gold is as nasty as any commodity out there, but if it does stay below $890 or so, it very likely could signal a calming of the financial markets and perhaps even a return to some form of normalcy for credit markets, or at least that’s what the new powers that be in Washington DC are hoping for. I’m cheering for that perception also because the world is a much happier place when the majority is concerned with a return “on” their money instead of clamoring for a return “of” their money.
The markets, which are the final judge of course, look to be agreeing with us right now with the monthly trends having now shifted higher for many of the carry pairs, along with the weekly trends also having shifted higher for major stock indices.
Jay
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