It's not often that a financial market tells us its intentions in a clear and obvious way. But occasionally it happens.
And it just happened last Wednesday.
First, to set the stage: Gold came into last week off a 17-week correction, with the direction of the next 17 weeks still up in the air. The big correction in 2008 lasted 34 weeks, so gold was at a critical balance point heading into the Fed meeting -- it was either going to move into the next up leg now, or in 17 weeks, in early May.
This was a major balance point that could have gone either way, mostly because there is a big scary bogey still out there, namely another round of deflation and de-leveraging emanating from Europe.
The last recession in 2008, with its accompanying financial crisis, caused a massive bout of deflation, which slaughtered gold and other financial assets, while triggering a major run up in the dollar.
So it's critical to know if a similar bout of deflation is coming now. And gold is a highly sensitive barometer on this. If we pay careful attention, gold will give us the accurate forecast.
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