Proof “Deflation” is taking place at the Fed

by Chris Kimble

On a more serious note regarding the Inflation/Deflation theme, many feel the Fed's policies will lead to strong inflation. From a stock market persective, inflation is taking place, as the Dow and S&P 500 are at/near all-time highs.

Another asset class can't say the same thing...see chart below

CLICK ON CHART TO ENLARGE

The Thompson Reuters Commodity Index a few months ago broke below a 13-year support line (left chart), then rallied to kiss old support as resistance and has fallen hard since.

On a shorter term basis (right chart) the index could be breaking support of this bearish descending triangle pattern.

I suspect that the Fed would rather fight excess inflation over deflation. In reality, none of has much control over inflation/deflation, other than we can make adjustments to our portfolios.

A further breakdown of support in the right chart would suggest that lower prices in commodities will be the trend. Understanding this trend could be important as Gold & Silver could be breaking 13-year support and Crude Oil is testing a 5-year support line.

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