Inflation Hiccup

Luckily for gold bulls, the doomsayers were out in force today raising a ruckus about the unexpected bump up in producer prices.

It was expected to be 0.2% and came in at 0.6%. In and of itself, this is rather meaningless. In our minds we have to take the inflation jump and spread it over maybe six months of virtually no inflation (about 2.1% in the last 12 months). Mixing the pop today in with the last twelve months would give us a producer price inflation rate of 2.15%. Al right, alarmists... go tell the king!

"We think a number of policymakers at the Fed and many market participants are overly complacent on the outlook for inflation," said John Ryding, chief economist at RDQ Economics in New York.

And remember, these are producer prices we're talking about, not consumer prices.

With wages under pressure and hiring still relatively modest, consumer prices have nowhere to go over a longer period of time - say a full quarter of reporting.

While today the inflation news was good for gold, tomorrow it may be digested fully and catch us on the whipsaw side. Lots of traders and analysts tend to be reactionary until more sober-thinking minds retake the reins.

Also helping gold today was the equities markets having the starch washed out of them for the moment. Of course, that will happen.

Possibly more interesting when held up for comparison to the rise in gold is the drop in the 10-year Treasury bond yield, which fell close to the 2.50% mark. Demand was brisk for the bond, however.

Some commentators are assigning the rise in gold and the bond situation to unrest in Ukraine. Odd, because it seems that today the country was much calmer.

The real bond-yield catalyst is the perceived inevitability of the lowering of rates by the European Central Bank. German 10-years are hovering around the 1% range and Japan is within shouting distance of a 0.5% rate.

While central banks, including in this group the Bank Of England, are watching sluggish growth and wringing their hands over rate cuts. Their traditionalist approach to economic stimulation is now in stasis. The major economies have to look at a set of solutions that embraces major infrastructure investment. Major.

Even President Obama's planned $300 billion plan seems paltry given the depression in the construction industry. All of us in the U.S., Europe and Japan can probably look out a window and see some sort of project that needs doing.

And that is even before we get into more conceptual projects like smart grids, ultra-high-speed Internet networks, and mass transit initiatives suitable not to the 19th but the 21st century. In less-developed countries, those needs are more acute and painfully obvious to their citizens.

Where's the beef? Where's the stimulus?!

Inflation? Bring it on. Create it in the form of national and international investment in concrete expansion of infrastructure

As always, wishing you good trading,