Today FOREX IN REVIEW

Gold has been a major topic of talking heads and investment advisors in recent months especially as emerging market central bank purchases begin to dwarf developed nations’ reserves. The major moves in gold have come off the back of stimulus measures and recently announced plans for easing. As previously discussed, gold is historically used as a mechanism to hedge against inflation and paper value debasement. This time is no different as the recently announced Chinese stimulus, ECB bazooka, and Fed Easing plans are flooding markets with cheap liquidity and financing.

The global currency war has reached the next phase as the major global powers are engaged in a battle to weaken currencies and stimulate export growth to shore up economies. Note the major gold breakout that occurred in August from a several month consolidation pattern has since exceeded over 150% of the original trading range. As traders increased expectations of easing, prices only moved higher. The central banks just now have upped the inflationary rhetoric and ante with the recent easing moves which could see higher input prices as oil crosses $100 threshold.

How will economies respond with higher production prices stoked by easing measures? Will this feed inflation further. Is Mervyn King going to throw his hat into the inflationary ring next with further easing announced by the Bank of England now that all other major parties (PBOC, ECB, FED) have acted? Sell-side analyst expectations for gold have only risen, averaging near $2000 per troy ounce just as famed investors like George Soros and John Paulson add to gold holdings in anticipation of further increases.
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