Every now and then TMM has the satisfaction of making money, and making money for the reasons they expect. In macro, that can often be more rare than one may think. To wit, we have only this to say to the gold bugs and other trolls that have occasionally frequented this blog.

Gold has been looking pretty weak for a few weeks now to TMM and not because of politics, religious affiliation or the recently cancelled Indian wedding we heard about from a friend of a friend. Quite simply, the flows into ETFs (much of it composed of retail) seems to have gone a bit flaccid as of late. Orange is spot gold, white is total ounces in all the major ETFs - principally GLD US and GBS LN.

That may look like a small blip on a long ride up to many of you but if you look at 2008 during a short and sharp period of liquidation of positions, gold got brutally beaten down to the tune of 25% - and fast. Similarly, a relatively naive regression of gold against total ounces in ETFs the day before yields a very respectable R-square.

Note that the errors are a bit heteroskedastic and the residuals do seem to bunch - there's more going on here but TMM isn't too keen to reveal all their tricks at once. The main point is clear though - when trading a investment that has no objective measurement of value and where demand depends entirely upon how much people want it for the sake of owning it then the usual analytic toolkit of commodities analysts is pretty pointless.

To that end, trading gold in USD is pure speculation but trading it against other things might be less so. Above is the chart of gold/WTI oil. It would seem to TMM that if we are in a recovery and if the new energy bill is going to require that oil companies ensure that all sea otters in the vicinity have hazmat suits when they drill then maybe, just maybe gold is not the best inflation/debasement trade out there. Sure gold is "under-owned as a financial asset" but so are TMM autographs - maybe inflationistas should focus on things that are in short supply and that people actually need rather than living out mediaeval fantasies.