Dear Friends,

The following is one of the more important charts I will post this week. It details the Gold/Bond ratio which is basically a comparison of the TWO generally regarded “SAFE HAVEN” assets – Gold and US Treasury Bonds.

If you note the colored ellipses on the charts and the comments you will see that in the summer of last year, just as the credit crisis erupted in full force, massive Japanese Yen carry trade unwinding occurred as deleveraging began in earnest. That caused a flight out of just about anything tangible, including gold, into the “safety” of the US Dollar and Treasuries. For the next few months, the Gold/Bond ratio fell rather precipitously as bonds became the “go –to” investment of choice for the risk averse. Translation – Gold underperformed in comparison to Bonds as a safe haven asset.

Look down at the red ellipse which bottomed exactly a year ago in late November/early December. From that point forward, the trend has been relentlessly in favor of Gold when investors are looking for a place to secure their wealth from the depredations of the banking class. Do you not find it odd that there are still those today, who in spite of the chart, will assert that gold is not a safe haven instrument and that Treasuries still remain the investment of choice for those looking for a harbor against the financial storm?

Perhaps those who have bought into that line of thinking are attempting to find solace in the fact that they have “not lost” anything by moving into paper bonds, but with the Dollar losing value at its current rate, just how much are they “not losing”?

What will really tip this ratio into overdrive to the upside is a move lower in the bonds brought about by a buyers’ strike involving Foreign Central Banks (think China) and the realization that the collapse in the Dollar has generated a horrific wave of inflationary pressure in all things tangible.

Click chart below to view today’s Gold – Bond ratio chart in PDF format with commentary from Trader Dan Norcini.