Is the Mustard finally off the Hot Dog?
As the overnight action continues to be very volatile, let's revisit my old friend the Gold Market. The Worlds Trade so to speak. I think if my Saint Bernards could talk they would ask when if I am buying gold and if not why?
I have layed out in great detail repeatedly in here why I think this is perhaps a bigger bubble than Real Estate was in 2005. I have overlayed a regression band for 3 standard deviations with a one year period. As you can see just a few days ago we exceeded this level. We are having a big reaction down so far, at one point this market has been down over $60 per ounce today. I think we will see a week with several hundred dollars an ounce down here at some point. When you have blowoff moves like this driven by speculators, generally they make V tops or bottoms.
That aside, from a trading perspective it is very difficult to guess where these highs will be made. It can take an overt news item like we have today to trigger it. The problem with this whole move has been it is being driven by individual investors and not the big money. As a result, it is a huge air pocket that will likely have crowded exits when small investors realized they have once again been duped. Since this market is alot more liquid than Real Estate, the drop when it occurs is going to be something for the ages to watch.
I have very much the same feeling about most markets right now that I had in late 1999. During that time I recall many people who had absolutely no idea what they were doing making literally millions of dollars buying internet stocks. I felt like a complete idiot because I was supposed to know something about trading and these people were far outdistancing my trading results. They were doing virtually everything wrong, yet getting away with it. I recall throwing up my arms one day in my office in late Dec of 1999, and just going to 100% cash in every account I had including retirement accounts. I just knew something was terribly wrong and was not going to buy into it any more. I told my friends who were trading and doing well to stop and get out. Of course I was laughed out of the room.
Two years later when I had actually made money shorting the crash and they had all been cleaned out, having lost millions in some cases, they came back to me and asked me how I knew. My answer was that I did not "know" but what I did know was the market was not being driven by a legitimate fundamental reason therefore it had to end. I did not know it would drop as far as it did, I just new it was a speculative blowoff being driven by things other than solid fundamentals. This Gold and stock market rally both have this exact same feel to me and I think they will both end the same way.
As you can see from my arrows on the chart, the trends are not yet broken, so it is possible this dip could still be a buy for another move up. Even if that is true, this market is on fumes or less, and it would not be surprising to me to wake up one morning and see it down $100 in one day. If equities are beginning something bigger down, this will follow. For those that have had the guts to stay long this long, at the very least have your stops very close now.
Time to sell the jewelry you don't use much, I have been pricing things this past week.