Gold retraced back up after the market digested the 50bp Fed rate cut, tried to get decisively over the downtrend line and has now decided to sit down on the line while the market decides what to do next.

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This is a market looking for direction, that seems like it wants to go higher. The problem is, there's a lot of resistance up there. All the way from 1650, 1670-80, 1700 and then 1720. Perhaps gold is waiting to charge, and gathering energy for the run. One thing is for sure - the rate cut by the Fed was panicky, and politically motivated. Yes, liquidity is a problem, and even moreso, falling velocity of money. Those are real problems. But the age of never ending rate cuts has to end sometime - unless of course you want to become the next Japan, and watch the US bond market become a mortuary.

The Fed can and can't do many things. It can cut its target rate, because it it willing to stand in the market and defend it. Ergo - 'don't fight the Fed'. They are bigger and can through, allegedly, infinite size around. That creates a market that fears them. Gone is the realistic assessment of risk. What the Fed can't do is target lower rates forever without consequences in the investment world. The market will decide that the risk is inappropriately priced, and the Bond's will be shunned.

Then, you get Japan... to lesser extent you get the EU. Governments buys bonds until... well, until they become the only buyer. Which means the larges funds of money (pensions mainly) no longer wish to receive nothing for their investment and government – magically - has no one and nothing to finance its endless stream of continuous debt, along with its 'contingent', if unfunded, liabilities.

That leaves only taxation. Which will strangle the economy thoroughly.

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