Pretty much as envisioned: gold rocketing to new high circa $1,060 and settling on Friday about $1,045.

The dollar dived then bounced a bit. Roughly $1.47 to the Euro.

Some strong sense the Europeans simply won’t let it climb over $1.50. Ie, will be buying dollars with euros to puff up the former.

So we may be approaching the end of the dollar’s slide for this cycle.

Wait and watch and see.

The puzzle, in a nutshell, is that stocks, gold and bonds have all been going up. Usually that makes no sense.

Hulbert surmises bonds will be the ones to break and thus restore conventional relationships.

My surmise a month ago was that the current puzzle does make sense if one imagines Peking is about to re-value its currency (ie, let it rise against the dollar, by abruptly reducing its purchases of dollars & dollar assets).

Anyway, here’s Hulbert:

QUOTE

(MarketWatch) — Gold and bonds do not usually go up or down together.

But try telling that to the markets over the last two months.

Since early August, in fact, gold bullion has risen by around 10% and the Treasury’s 10-year yield, which moves inversely with Treasury prices, has fallen by nearly 15%.

These moves are substantial, in other words, and more than just day-to-day noise in the data.

What’s going on?

Consider first why gold is so strong, reaching a new all-time high this week. One explanation is that this has been caused by a weaker U.S. dollar on the foreign exchange markets. This is certainly plausible, since the dollar has been very weak lately.

Another plausible explanation for gold’s strength is that it is discounting higher inflation in coming months and years. And it is indeed hard to imagine that the trillions of dollars that the world’s central banks have injected into the financial system won’t eventually have an impact on the inflation rate.

Credible as these explanations are, however, they are hard to square with strength in U.S. Treasury securities. A weaker dollar, of course, puts more pressure on the Federal Reserve to raise rates, which would in turn cause Treasury prices to fall, not rise. The same outcome would presumably result from higher inflation, too.

We reach a similar impasse when we consider why Treasury prices have been so strong. The standard explanation is that they are discounting a weaker-than-expected economy and/or deflation, which will cause rates to stay low. But those are hardly the preconditions of a gold bull market.

Either way you look at it, then, we come to the same conclusion: Recent trends are unsustainable. Something’s got to give.

Which will it be?

Several factors are pointing to the bond market as being the more vulnerable right now:

– The stock market has also performed well of late, and equities would not thrive if the economy were weaker than expected or if deflation were a bigger-than-expected threat.

So, in essence, the stock market is betting that gold is right and bonds are wrong.

– Bond market sentiment is at near-record levels of bullishness right now, and (according to contrarians) the consensus is rarely right.

— Sentiment among gold timers is remarkably restrained, if not outright gloomy, suggesting that there is a strong “wall of worry” for a bull market in gold to continue climbing. ( Read my October 6 column on gold market sentiment.)

The bottom line?

Don’t be surprised if the bond market over the next several months is markedly weaker than gold.

END QUOTE

(Reminder: you can “play” gold and silver (also very strong) in Ye Olde Retirement Account thru a plethora of funds and ETFs. Don’t have to buy the metal.

GLD is an ETF that warehouses gold. GDX mirrors gold miners. FGLDX is a precious metals fund. There are many.)

But so far the button-holed, button-pushed “Nonsense, Sheer Nonsense” follows-up don’t persuade me that Fisk fabricated his reports of particular evidence.

(Interpreting the evidence is a trickier matter …)

Bush-Cheney, recall, sorely and repeatedly pissed off the Saudis — in particular their revered oil minister, Ali Naimi — when circa 2004 the White House started preaching and implementing Energy Independence (not a bad idea IMHO).

THAT broke the contract — dated 1974 — in Naimi’s eyes.

He gave many speeches re this — not Getting Mad, but gently trying to persuade the Americans of the folly (?) of energy localism. Whatever generated today’s Fisk story might be seen as Getting Even, with sad resignation.

However that may be, Fisks’s news in a sense is NOT news: the US-Saudi contract was broken circa 2004.

THEN AGAIN:

Obama’s Cairo speech and the recent at the UN mean something to the Islamic world. I should think most politicians/owner-operators over there would like to see and participate in fence-mending.

So I imagine that oil will leak, not surge, into other currencies, across time, with occasional blips of pubic awareness like today.

Isn’t it the case (does memory serve?) that Iran already carts the lion’s share of its crude to China without using the dollar?

This seems to be why/how a pundit the other day was able to say that enlarging our current wars on Iran’s east and west borders would not disrupt the Seven(?)-Sister system or oil prices all that much. Ie, Iran and China are already outside that system.

Here’s Naimi speaking a week ago.

– Desire for Debt Destruction to clear the decks so the cannon of the Free Market can loosen up and get rolling again; and

– Dollar Bullishness (any day now).

The first desire sees the current crisis as a popped Credit Bubble that has left too much debt in the US economy (among others). Those loans have to be undone, either by being paid, or defaulted on and written off.

But people like PIMCO’s Bill Gross, the bond king, have been saying for a long time that the obvious solution is Dollar Devaluation. Which undermines debt (as an asset) by reducing the buying power of the dollar used to pay back a dollar borrowed when its BP was much higher.

The Free Marketeers don’t like this third option. They want Debt Destruction AND a strong dollar.

But if the path of least resistance to Debt Destruction — for regulators, politiicans, yea, verily, even those who might like to rebuild Uncle Sam’s industrial base — is dollar devaluation, then … won’t peeps have to choose?

And apparently today’s G7 acquiesce in the path of least resistance. (See first link atop main post above)

A Free-Market purist might even see the pragmatic path of Dollar Devaluation as, to speak of essences, merely water finding its true level after an era (the Postwar) of interference by an eager-beaver Army Corps of Engineers.