I wrote last Friday that gold was approaching a key inflection point, as it was forming a triangle and its apex was near complete. Although it appeared as if there was slight positive divergences occurring in the RSI and MACD, I concluded by writing, "As is always the case, price will ultimately shape my opinion." And as you can see with the hourly futures chart below, price has spoken and it's quite bearish.
The weekly chart of gold is something to see as it has played out in near-classic technical analysis fashion:
On April 23rd, I posted an entry entitled, "Is Gold Following Expected Inflation," and showed gold's relationship to expected inflation as represented by the 5yr5yr forward breakeven rate. There appeared to be a high correlation between the two and I wrote then, "Judging from history, as long as this 5yr5yr inflation trend remains down or declining, it's not good for gold."
As you can see in the chart below, and undoubtedly much to Bernanke's dismay, the trend for expected inflation has remained down.
I have to think Bernanke is keeping a close eye on this 5yr5yr inflation chart, definitely preferring that expected inflation reverts back to the 3% level -- which would be bullish for gold. But -- and it's a big "but" -- expected inflation had been declining since late January in conjunction with Fed balance sheet expansion going through the roof. Question: can the Fed do enough to get expected inflation back to the 3% level, or is it pushing on a string?Here's the current chart for the Fed's balance sheet: