Steve Saville

Gold and “risk” assets rally whenever traders get the faintest scent that more QE (a central bank program designed to increase the money supply) is coming.

We discussed Warren Buffett’s illogical opinions about gold in our 15th February 2012 report under the heading “Buffett’s Blind Spot”.

To paraphrase Einstein, not everything worth measuring is measurable and not everything measurable is worth measuring.

s time to update our long-term weekly charts showing how the gold sector, as represented by the Barrons Gold Mining Index (BGMI), has performed in US$ terms, gold bullion terms and S&P500 (SPX) terms.

The US Great Depression lasted from 1929 until 1945, but the deflationary phase of the Depression effectively ended in 1932.

We addressed the above question last year and arrived at the answer: no, gold left bargain territory long ago.

Considering how popular the term “Quantitative Easing”, or “QE” for short, has become, it’s remarkable that many commentators on the financial markets appear not to understand what QE is.

When reviewing the long-term performance of the gold sector in previous TSI commentaries we looked at performance in nominal dollar terms and in gold terms, but as far as we can recall we never looked at performance relative to the broad stock market.

“The HUI is probably going to make a short-term bottom within the next three weeks, but speculators who focus on gold and silver stocks should be financially and emotionally prepared for frustrating back-and-forth price action to continue until at least the final quarter of this year.”

This week’s downside breakout in the T-Bond futures market and the associated rise in the T-Bond yield has prompted us to re-visit the relationship between gold and interest rates. In the process of doing so we’ll address the question: are rising interest rates bullish or bearish for gold?