Yesterday, US CPI figures came in a little hotter than the market had discounted. I take the view that this is the sort of debate theologians are said to have had about how many angels could dance on a pinhead — a distraction from the real issues.

Gold was marked down by nearly $30, and silver by 40 cents or so. But then gold had been rising spectacularly, and speculators were in for the ride. As you can see from the chart, after its recent performance a reaction in the price was hardly surprising.

The other side of the hedge fund trade is the dollar. And after recent falls, that had a minor bounce to test what has become overhead supply starting at 103 on the trade weighted index.

Furthermore, the yield on the 10-year UST note saw a bit of a bounce.

We are having to work through some important misconceptions here. Nearly everyone, it seems, is waiting for the Fed to lower interest rates, so the charts above reflect disappointment. But the mainstream players’ dream of the return to falling interest rates rescuing everything financial is misguided. It is based on some very flaky Keynesian arguments, bolstered by monetarist concerns over stagnating money supply. But they overlook some simple facts: The War on Drugs Is a ... Laurence M. Vance Best Price: $5.87 Buy New $5.95 (as of 09:10 UTC - Details)

·      With a US budget deficit this fiscal year likely to top 12% of GDP, there is substantial currency debasement in the pipeline. This is the origin of inflation, which is not over. It means that interest rates must remain nominally high until the US Government gets its financial house in order — if it ever does. And a number of other major welfare-driven nations have the same problem.

·      The US is now adding a trillion dollars to its debt every 100 days. Actually, it’s worse than that because the pace is increasing. That has to be funded, as well as maturing debt of $7.5 trillion this year. Question: who is going to buy it, and what will they expect in return?

·      Lastly, and this is the inconvenient truth. When something is demanded and there is insufficient supply, the price rises. This is true of everything, including the relationship between debt and its interest rate cost. With the US Government simply rolling up its interest costs into new debt and spending regardless of cost, we can be certain that interest rates along the yield curve will rise on a one-year view, almost certainly substantially and for as long as the dollar exists. The Autobiography of B... Franklin, Benjamin Buy New $16.99 (as of 08:17 UTC - Details)

This is where those believing inflation is licked and interest rates will fall have got it totally wrong. The gold price is not driven by an easier interest rate outlook as commonly stated by market ingenues but by a growing realisation that the US Government is bust and that will be reflected in the faith in the dollar, particularly from the Asian nations throwing off US influence.

That is why the dollar-based financial system has been caught with its pants down, capital markets cleaned out of physical bullion by Asian demand and becoming an empty shell devoid of credibility.

Play with the punters, and you lose sight of the real issue. Sink with the dollar, or swim with gold.

Reprinted with permission from MacleodFinance Substack.

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