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Since the financial crisis in 2008, the central banks in the US, Japan and elsewhere have added more than $9 trillion.  That was the stimulus for gold, which was trading around $830 an ounce prior to Bernanke’s announcement of Q1 in November 2008.

Gold gained favor as a hedge against inflation and as a store of wealth amid the debasement of paper currencies.

But with inflation showing few signs of re-emerging in developed economies and the dollar strengthening, important factors stopping the gold price from sliding lower have now been removed from the equation.  At least that’s how Wall Street and the mainstream views it.

We, on the other hand, see things quite different.  We agree with Shadowstats that inflation is closer to 9% than to 1%.  We believe the only positives on the economy and employment are the spin put on them by the BLS.  We also believe that truth will prevail, which is why we are patient and buy the dips.  We will not be surprised or disappointed if gold drops even lower.  Before gold can rise, it first must bottom.  We know that the bottom is not far off and when gold starts to rise off the bottom, even if it is in the $1100s, the long wait will be over.

Gold is down 26% since the start of the year and looks set to end its unbroken 12-year bull run in 2013.  It’s been a difficult year for gold bulls, but we are a hardy lot.  A good friend of mine who is in our industry told me, “I’m hanging on by my fingernails, but I have strong fingernails.”

Here are a few comments from Money and Markets (Mike Bumick) that I am featuring today below:

The Fed’s balance sheet expansion since 2008 has nearly quadrupled the monetary base, but a great deal of this money is sitting as idle bank reserves — not circulating through the real economy. Bank lending isn’t growing at a rapid rate, partly because business and consumer loan demand hasn’t been robust.

In other words, QE hasn’t triggered a big increase in the turnover of dollars moving through the real economy. You can see this in the latest inflation figures too.

The Consumer Price Index is up only 1.7 percent annually, while the Fed’s preferred inflation gauge (personal consumption expenditures) is even more subdued, rising just 1.2 percent. And that measure has been below the Fed’s 2 percent target ever since the first round of QE was rolled out in 2008.

Too little inflation is precisely why the Fed believes a continuation of QE is justified.

The economy down on Main Street may not benefit from QE, but Wall Street is a different story, and there are plenty of signs that QE is inflating financial assets.

That tells me the Fed’s money is being put to work on Wall Street, instead of Main Street; some markets and sectors are getting frothy as a result.

Still, U.S. stocks may no longer be as dirt cheap as they were in 2009, but that doesn’t mean they are priced in bubble territory either.

Money and Markets, November 21, 2013