Recap 12-13-11

Main Items:

  • US Retail Sales declined to 0.2% in Nov vs 0.6% exp and 0.5% prev. The ex Auto & Gas figure declined to 0.2% vs 0.4% exp and 0.7% prev
  • US NFIB Small Business Optimism improved to 92 in Nov vs 91.5 exp and 90.2 prev
  • Minimal change in FOMC statement.


  • Merkel rejected raising the funding limits for ESM – Reuters
  • German Zew Survey of economic Sentiment improved to -53.8 vs -55.8 exp and -55.2 prev
  • French CPI increased to 2.7% in Nov vs 2.5% exp and prev
  • UK RICS House Price Balance improved to -17 vs -25 exp and -24 prev
  • UK CPI declined to 4.8% YoY in Nov as exp vs 5.0% prev. The Core measure declined to 3.2% vs 3.3% exp and 3.4% prev
  • Australia NAB business confidence was unchanged at 2 in Nov


Gartman put out a piece today that he thinks gold is going to tank. This is notable because he’s been a long time bull. The article suggests that his main reason is that permanent psychological damage has been done to trend followers.
While it’s difficult to forecast the price action in the short term, and the fact that Gold broke long term support today appears ominous, the fundamentals suggest that his call is too early. People buy gold for many reasons, but the primary reason over the past decade has been the preservation of purchasing power. When people lose purchasing power by keeping their cash in the bank, they look for other havens. Deficits, the EU crisis, monetary debasement and other reasons have also been cited for the bull move, but the following chart shows that, since real rates became negative, gold price action became correlated to inflation expectations:

Now, there are various reasons this relationship could break down, of course. Forced deleveraging due to the situation in Europe is one. The price action following Lehman wasn’t pretty. But in this economic environment of negative real rates and positive inflation, it does NOT appear that the fundamental driver of the gold rally has changed.

See also: