Before we get to today's main topic, the $100 spot that was laid on GOLD yesterday, I want to go through a few setups that are at hand. First, Sugar is now once again in play, and aggressive traders could certainly be short coming into today here. What I like about his now is the new high with the huge divergence in the POIV index, right at a time when both a seasonal decline is indicated along with a longer term cycle high is projected. We also had my COT Index spike sharply down right at the right time here. How you find your way into this trade is up to you, but this is one I have been talking about to short for a downward move. It does appear that now we may have started that move. You would have had to have been pretty sure about this to have gotten short already, but are we ever really sure? Trading is about probabilities and making money, not about being right. The older I get and the more trades I make, the more I realize this.
The second occurrence on this chart even though it worked, I do not consider to be valid. The reason for this is when you get extraordinarily large moves like this once the trend changes, there is a reset period required before indicators get back into "normal" mode. We had not fully recycled at that point even though had you referenced this it would have advised you correctly.
Now that I have shown just raw statistical reasons as to why a decline should occur here, lets talk about some other things surrounding this market. This is without question anecdotally, the most over hyped trade I have seen in my lifetime. The biggest issue I have with that hype is that it is based on a false premise. There is simply no consistent history of this store of value concept. It makes sense logically when it is argued, but it is not in the data, PERIOD. Times of crisis have resulted in both rallies and declines in GOLD prices over time, about an even bet.
I am sure people will come out of the woodwork with you have to buy now, this is a great buying opportunity. It strikes me as strange that most people will accept an argument based on statistics until it is applied to their favorite field of interest. When that happens they create reasons as to why it is different this time and the reversion will not apply to their market. The real estate bubble and the stock bubble of 2000 are both perfect examples of this. It was going to be a new world revolutionized by the Internet and that was why companies with no revenue should be valued in the billions. They sure aren't making anymore land is what they cried in real estate. Now it is we have this financial crisis, so Gold is a store of value. Even though we are 4 standard deviations above the mean, that means nothing because of their fundamental argument which is based on an idea and not precedent. The long term cycles still call for a January top, so we could move higher again, or that could be a right shoulder type of situation.
Folks just go look at the charts during prior crisis periods, this relationship is just not consistent. We have had a monster bull market here, and with all commodities, there are reversions. There will be one here and it appears to be under way. I am not short this market yet, I don't try to fade moves like what this one has been it is suicide. If we calm down some and get a valid retracment pattern for a short entry I will be a player here but most likely in Silver, since it has long since put it's top in. Sell the weak and buy the strong.
If you are a GOLD bug don't bother with the comments arguing this, it is a waste of time and I know I cannot convince you until the price drops to $600, so let's just move on. These are my thoughts so let's just agree to disagree. You have been right so far, I did not think price would get this far, the question now is whether or not it is has peaked. For the record, I am not sure at this point. This above discussion is based on a reversion being underway, I do not know if this is going to be the all time high or not at this point and neither does anyone else. I could care less if it is or is not the all time high, that is not what will make me money.