"Investors applauded Labor Department figures showing wages and benefits increased at a much slower pace in the third quarter than had been estimated. Recent concerns about inflation have eroded some hopes that the Federal Reserve would start lowering interest rates next year. The central bank has said inflation remains its primary concern."
As I have mentioned before under this thread, investors are obviously obsessing more about the Fed's response to the economy than about the direction of the economy itself. That says two things: (1) investors continue to believe that the Fed is still in control of the financial picture in the States, and (2) investors believe that evidence of low inflation is dollar bearish and gold bullish.
As I had previously mentioned, this is the opposite of what the picture should look like from the gold bug's perspective. It's an upside down world we live in these days where inflation is considered currency positive and lack of inflation a currency negative. During the rally late last year and early this year, increasing evidence of inflation (in the CPI and other inflation gauges) definitely fed the gold rally, which is the way it should be. These days, for several months now, evidence of inflation is being interpreted as gold bearish and lack of inflation, gold bullish. Today was case in point, as the lower than expected labor unit costs reading contributed to Gold initially spiking higher (though it did sell off during the rest of the day).
I believe that a reversal of the current market reaction towards inflation will be important for Gold to move into the next major phase of the bull market (the phase where it reaches past $887/oz). Certainly, the current distorted and confused perception of inflation and what it signifies, is fine for the rally we are currently in. But I doubt that Gold will really soar until this confusion is straightened out.
Related Article: [http://biz.yahoo.com/ap/061205/wall_street.html?.v=16]
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