Ray Dalio’s Surprise Comments On Gold And The Reason Why Gold Is On A Tear

With the price of gold surging nearly $30 at one point, today a famed short seller covered the big news in the gold market and the reason why gold is on a tear.

Bill Fleckenstein on pullbacks in the gold sector:

“There will always be corrections, the only question is how deep they will be. Currently, those on the sidelines are looking for a SEVERE decline, and I don’t think they will be accommodated.”

Overnight markets were on the flat side and rather unremarkable. As for the U.S. stock market, it meandered around unchanged through midday before grinding slightly higher in the afternoon and closing with a 0.2% or so gain…

Bill Fleckenstein continues: Away from stocks, green paper was weaker, oil was flat, fixed income was stronger (especially on the long end of the curve), and the metals were higher, with silver and gold gaining 2% and both of them appearing to break out from different types of technical formations.

Financial Superstars Warn, Despite Bounce, Global Stock Market Carnage To Continue And the Yellow Rose of Texas…
The proximate cause for today’s breakout could have been anything, though I think it was interesting that in a speech at a venue in Texas the head of Bridgewater, Ray Dalio, noted that he thought investors ought to have 5% to 10% of their assets in gold. He has advocated that position in the past, but the last time I saw anything publicly was perhaps as long ago as 2009, which in the current environment is essentially ancient history.

As I am writing this I haven’t seen his exact reasoning, but as I said many times during the bear market, once the price action started to confirm the news on the upside the momentum would feed on itself. The backdrop was bullish for gold the entire time it was declining, and in my mind all it needed was better price action to get buyers to step in and have other people change their opinion from negative to neutral to positive.

…Shall Be Mine Forever More

In other words, a rising gold market — given the world backdrop — would make sense, as opposed to the opposite. I would think at some point we could see a real feeding frenzy, although there is no real point in planning for that because for anyone who is long, any sort of pleasant positive surprises take care of themselves.

King World News – Bill Fleckenstein – The Longer A Mania Goes, The Worse Off Everyone Will Be When It Ends – The Aftermath Of This Is Going To Be Extremely Brutal, Plus A Bonus Q&A

Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.

Bonus Q&A

Question: Fleck- do you look at previous support as resistance? I ask because we are approaching such resistance on most major US indices. In the past, we would just blow right through it. Markets turning back down soon would indicate a failed rally, no?

Answer from Fleck: “I’m aware of the concept, obviously, but I only use those sorts of things as general rules. I’m not dogmatic about it, in other words. We haven’t blown through any upside resistance in about 18 months, but yes, if the rally fails, it will be a failed rally.”

Question: The inflation argument doesn’t work for me because it seems that it would eventually lead to hyper-inflation unless we first have a deflationary bust.
# 1, I can’t imagine the bond market holding together long enough to see hyper-inflation.
# 2, with enough hyper-inflation, wouldn’t we all be able to eventually pay off our mortgage debt with pocket change? That sounds way too good to be true.

I’m in the deflation camp. I believe that credit bubbles lead to credit busts.
I think ’08 was a prelim.

Answer from Fleck: “That is poor logic and reasoning. First of all, inflation rarely leads directly to hyperinflation and second, just because you can’t envision an outcome doesn’t mean it can’t happen. Just look at QE and its impact on oil.”

Question: Latest letter today from Bill Gross:
…economic system appears to be in the process of devolving from a production oriented model to one which recycles finance for the benefit of finances….In addition to banks, business models with long term liabilities that depend on 7-8% future returns from risk assets are themselves at risk – not necessarily of bankruptcy but future profitability….[insurance companies, pension funds, savers]…central bankers seem ever intent on going lower, ignorant in my view of the harm being done to a classical economic model that has driven prosperity…There is a somewhat suspicious uniform attack on high denomination bills of global currencies. …If negative interest rates fail to generate acceptable nominal growth, then the Milton Friedman/Ben Bernanke concept of helicopter money may be employed.

Answer from Fleck: “Lots of people are starting to see that the central bankers have created a huge, huge mess.”

By Bill Fleckenstein President Of Fleckenstein Capital
March 3 (King World News)