Tuesday, December 09, 2008

Inflation round the corner?

One of John Murphy's intermarket watch areas was the relationship between the 10-year treasury note price and the price of oil. The patterns of inflation, stagflation and now deflation are clear for all to see. I had posted on the shift to stagflation in February 2008, but things look very close for a return to inflation given the disparity between the two.

Inflation is a normal course of action in a strong economy, but how this will impact on the current state of affairs remains to be seen. When inflation does return it will be bullish for commodities and commodity based stocks, but I am still of the belief gold has to drop more in line with other commodity prices - with that of other precious metals - before a bottom can be declared in commodities and the next up leg (with inflation) can begin.

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website