Collapse of Rio/BHP Deal Highlights Gold's Outperformance

In a not-so-suprising announcement today, BHP Billiton (NYSE: BHP) said it is giving up its long-running attempt at a hostile takeover of Rio Tinto (NYSE: RTP). Not only would such a deal have faced high regulatory hurdles given the potential size of a combined BHP-RIO, but the shuttering of credit markets and 50% collapse in the CRB index made today's announcement a near-certainty.

Now, about that fall in the CRB index, which is representative of the sharp second-half declines in oil, copper and other industrial commodities: it's yet another indicator which makes the action in gold look especially good by comparison.

So I don't appear like a raging goldbug in the wake of my Friday article on the precious metal, I will acknowledge gold that has staged a few failed rally attempts this year and it's not yet clear cut that its current move is any different. Still, I think it's a tell that the ultimate inflation indicator is showing signs of life and is only 20% off its highs versus a commodities spectrum which has been halved.

This morning on CNBC, Pimco's Paul McCulley said, "Now I look out five to ten years, my gut tells me that there's got to be some sort of inflation payback as a consequence of all this money creation... but over the next year or two, I simply don't see it. It's further and further out over the horizon."

Gold may be suggesting that inflation payback will arrive sooner than anticipated.