One quick way to tell if the Fed is too lose (inflationary) or too tight (deflationary) with its monetary policy is to check trends in the gold and the dollar. If the Fed is too lose or the economy is in an inflationary environment, gold should be moving higher. The opposite is true of a tight monetary policy or a deflationary environment. Granted, the Gold Bugs would argue that there are numerous other inputs which determine the price of gold but in a broad brush sense, gold is a good measure of inflation.
Therefore, its interesting to note that gold recently broke its long term uptrend from the 2001 lows and is currently consolidating in a sideways triangle. Whichever way it breaks from here should give a good indication about future inflationary expectations.
Interestingly enough, the Gold Bugs Index (HUI) looks like it has begun to form a nascent downtrend. Unless the Gold Bugs can make a stand at the current levels, the gold market could be rolling over. This would be another indication of the Fed implementing a tighter monetary policy.
