Despite my disbelief in the gold story, I have actually been riding the uptrend and profitting along the way because "bubbles always go higher than you think!" In recent days, the metal everyone loves has been losing momentum since reaching an all-time high at $1,265, so what is next for gold? Historically, gold has done well during periods of inflation and/or USD weakness (since all commodities are denominated in USD). For example, gold did exceptionally well in the 80's because we had enormous inflationary pressure. The latest bull run in gold started in late 1999, corresponding with the start of the bear market for the greenback. However, I believe we are currently living in a disinflationary/deflationary environment as debt-deleveraging on every level (federal govt, state govts, businesses, and households) continues to weigh down on consumer prices. On the other hand, the Dollar has shown pockets of strength as fear has halted the carry trade and attracted flows to the currency. Technically, the metal has completed a 5-wave uptrend (check Elliot Wave Theory for more detail), suggesting that a correction is likely and imminent. In addition, while gold has continued to appreciate in recent months, gold producers' shares have surprisingly lagged, providing more confirmation for my thesis.
Actionable recommendation: Short gold at spot (1,225) or around 1,265 (all-time high) with stop loss somewhere above 1,300 (depending on your risk tolerance) and take profit around 1,044 (38.2% retracement).
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