This thread was started in response to the Article:

Implications of Gold's Rise Relative to Oil by: Ashraf Laidi
Posted: September 18, 2008 ET
Comments: 22
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Steve:

Sounds right enough to me - I entered Gold long at 757 on Ashraf's review of the Gold/Oil ratio, it is now at 897.

As a former Economics Doctoral student I enjoy disscussing the nature of the markets - money seems to be a nice reward for the effort!!!

To all:

These posts are constructive, we should all be serious of contents in these post chats to be serious to make money together, not to make it a chat talk. My opinion. Regards.

Gold also showing some effect of early risk aversion. Markets are giving converging signals on a weakening dollar.

Ashraf - your estimates on GBP/USD resistance have proven their utility over the last 4 hours.

Thanks!

Jason

I expect we will remain in a bear market until Q4 09. No real rate hikes until probbaly 2010.

Steve

GBP and NZD remain the best USD bullish play. I've been telling CMC clients how bearish i was GBP since last October. The currency is even starting to lose a very important thing; its reserve status. While I agree with $1.60, Im not too comfortable in drawing the conclusion for such an excessive rally in EURGBP. Perhaps 0.85 cents is the max. GBPUSD Overall Play remains bearish, but use generous stops. $1.8470, 1.8520 mut act as significant levels of resistance.

Steve - It looks like investors are regaining risk appettite in response to the bailout and using the dollar on the short end of the carry trade against higher yielding currencies as expectations are for further rate cuts which would lead to even larger profits for the carry traders. Oil has been bullish again which further hammers the dollar as demand for oil is reduced (I believe Oil demand has become more elastic at current price levels).

Watch for Gold to rise the next 2-4 weeks (see Ashrafs comments below)

Ashraf,

England has tons of problem, much worst than USA, no reason for GBP to go up way above 1.80+. How high can GBP goes before we all short GBP/USD to the ground - 1.5 area? Your thoughts and insight pls. As usual, thanks.

I am in full agreement with your assessment of the current conditions.

What is your feeling on the risk appetite of the true Creditors of this plan - Foreign governements and sovereign funds currently buying treasuries. At the very least they will strongly demand better pricing, which would conflict with the Fed's desire to keep domestic debt prices low so as to keep the credit lines flowing through the markets.
Eventually, Foreign investors sentiment will judge the US paper to risky and flee to safety.

I believe the Fed will have to finally admit to the public, no matter the political fallout, that the Country as a whole has been living on borrowed money and time, and that the Creditors have become concerned with the amount of risk present in the US economy.

It is at this point that I believe the short term corrective rallies will turn and the Bears will come hungrily out of hibernation, finally selling off and removing the "bad money" from the markets. Foreign investment will stay on the sidelines as the dollar, bond and equities markets effectively reach new "real" equilibrium from the current nominal highs.

Once this has ocurred the U.S markets may be in for one of the largest rallies in history as sentiment will have reversed and Foreign investors will shift from agnostic to bulish.

I will be staying long Gold, taking no other positions over the next 2-3 week. Closely monitoring for the correction to end, and calculating where to enter USD/JPY short position.

How long do you foresee the Bear conditions persisting post correction?

Structurally, the system will remain impaired and the long term dynamics of the economy will continue to deteriorate. As for equities (and risk appetite), i believe they will extend their rally for the next 2-3 weeks, mounting a corrective move, such as the one we saw from mid March to end of June. But we're still in lower highs in equities and USDJPY. squeezing out the weak bears is next. I will post an article detailing all of this next week.

My wife and I love Vancouver. It would be a bonus to attend your seminar.
Your observations on the Gold/Oil ratio continue to be spot on.
Except for a very small play in USD/JPY and my long term Gold position, I am staying on the sidelines today. I am not sure if the current intervention by the Fed is a good decision. Banning short selling is anathema to those who believe in free markets. Additionally, the immediate euphoria over the equity rally is not being observed in relation to the surge in commodity prices: Oil +6%, Copper +4%, Wheat +3.5%, Soybean Oil +5%, Corn +3%; and equities are, for all practical purposes, rallying on bad news not getting worse. I believe that this spells the final act of the dollar rally with no curtain call in sight. Inflation looms nearby at the same time as major U.S employers/manufactureres and financial/service firms are cutting their payrolls to buoy stock prices. This is akin to giving a junkie one more fix before being shipped off to rehab to truly get on the mend.