Mr. Coxe suggests monitoring the KBW Bank Index, a barometer that measures the big U.S. banking stocks.

“When that index turns up decisively, which should happen just before the economists realize that things are getting better, then I think that’s the point at which gold will really outperform,” he said.

while don coxe has done a very good job in explaining the deleveraging that started in july, this is one point where i disagree with him. he has often said that we need to see the banking index turn up as evidence of a strengthening economy before gold will do well, but i doubt we will see that. the banks, led by the so-called fortress four, are insolvent, and they are heading relentlessly downward.

it doesn't matter whether you look at citigroup, bank of america, jp morgan, goldman sachs or any large bank in any other country; they all own more or less the same mortgage-backed securities that are worth next to nothing. while it is true that mining stocks performed just as badly as the banks last year, the difference is that most of the mining companies are solvent, they have real assets, and they are already coming back. the banks are going to be nationalized, even if the government doesn't use that word.

i think the m3 chart, from shadowstats link, is the most important indicator of what will happen. the m3 money supply chart started to decline sharply in early 2008, a leading indicator of what would happen when money was drained out of the capital markets. but in recent months, the decline has reversed, and m3 has turned up again. i don't think it's a coincidence that gold and silver have rallied sharply, and i expect the rally will continue as long as that chart behaves itself, and the money supply continues to grow.

http://www.shadowstats.com/alternate...