As regular readers know, I have been advocating the purchase of gold for quite some time. The big news in the gold market last week was the fact that India bought half of the gold the International Monetary Fund had said it wanted to sell.

(I'll be interested to see who takes the other 200 tons, and I would not be at all surprised to find out that it's China.)

As my ever-eloquent good friend Jim Grant of Grant's Interest Rate Observer said to me, "So much for the modern conceit that gold isn't money!"

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Folks might remember how the gold market was criticized as overpriced (as gold rallied from $250 past $1,000 an ounce) every time the possibility of the IMF selling its gold was raised.

Well, here the IMF did finally sell half of its gold -- and at basically a rounding error off the all-time-high price, now above $1,100.

That brings up an old stock market saw: that in a bull market, the market rallies to supply. It seems like an impossible observation, yet perversely it often tends to be true.

It's worth noting that the IMF sale is just one of many bricks in the gold market's wall of worry, another recent one being the thought that the price of gold topped $1,000 only because Barrick Gold (ABX.TO) had reduced its hedge position, when it turns out that the company hadn't finished that process, as 1.9 million ounces remains to be closed out.

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Jumping the gun on a top in gold
So all of those folks who thought Barrick had done all it had to do -- and call that a sign of a top one month or so ago -- will now have to come up with a new reason to say the gold market has peaked. In my opinion, we can't even think about a meaningful top until such time as gold stocks are embraced with enthusiasm.

Meanwhile, gold stocks trade as though an attack of the swine flu or worse will infect anyone buying them. Most of the gold-mining companies delivered lukewarm results last year, quite simply because the price of gold wasn't high enough relative to what it costs to "make" gold. The price still isn't, but the companies' results have begun to improve recently.

Also keep in mind that this is mining, an incredibly tough business with all kinds of moving parts, one that does not lend itself to smooth quarterly results. From one quarter to the next, we can see immense quantities of noise. Great quarters occur as well as crummy ones, and neither should be blindly extrapolated.

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Regretfully, we live in a world in which everyone wants to play "beat the number," in which each quarter is treated like a pass-fail final exam. Having been a director of Pan American Silver (PAAS.O), a company with seven mines, for the past 12 years, I can assure you that if there ever was an industry with no business being involved in beat the number, it's mining. Folks should expect volatility in miners' results and not get too caught up in short-term machinations, as it's the next few years that will matter most.

A shift in the market's mood
Turning to earnings and the stock market at large, few companies have been able to rally in the wake of their results, no matter how good they were. A really great example is Intel (INTC.O). In mid-July, the company announced expectations of better results for the third quarter of 2009. They were better, and Intel guided higher for the fourth quarter. Yet its stock is barely higher from where it was in mid-July, and it's well below where it was when the company reported earnings in October.

And if there's even the slightest hint of near-term disappointment, stocks are just crushed. To wit, despite its apparent success at beat the number, STEC (STEC.O), a maker of data storage devices, on Wednesday was clubbed for about 30% as the company slightly lowered its forecast.

All of which, I believe, indicates that the market environment has changed from what occurred during the March-September rally. That said, I believe stocks are not ready to go down for real just yet (something I expect in 2010). Plus, you can be sure that any serious stock weakness will be met with more monetary stimuli from the feds.

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As for Wednesday's U.S. Federal Open Market Committee decision, to no one's surprise the Federal Reserve decided not to change interest rates. And though the Fed paid lip service to being vigilant about inflation, the remarks were on the dovish side, especially given how much play the Fed's tough talk has received.

The jawbone standard
Talk is cheap, and to a large degree the Fed is on the jawbone standard -- in that the governors can easily talk tough but never will be tough. To the extent that the Fed pursues any sort of a tightening policy somewhere down the road, it will be a day late and a dollar short, and it will occur only after the U.S. dollar itself has depreciated even further, especially versus the price of gold.