If you’ve read my blog you know if I am anything, I am a contrarian.
Being long gold is not contrarian.
However, Gold’s break out above 1733, above that key trendline, suggests a 300 dollar rally is in front of us.. Why 300 dollar rally and not 3,000?
Taking the trend lines above and below the market gives us a symmetrical triangle on the daily charts. The base is measured, from the September 26th low at 1535. Remember, this low was made just 20 days from the contract high at 1923 on September 6th. Bulls who bought that new high took a 388 dollar hair cut, or 20% loss in 3 weeks. That type of sell off leaves a mark. Like a face plant on to asphalt paving without a helmet.
So what happened? That low scared out a lot of “weak” longs. Weak because they were not capitalized enough to take a 20% hit on their “investment”. Their “investment” strategy was to buy high and sell higher. It didn’t work. They puked their long position like a super model after a pizza/beer/ice cream binge.
That panic puke was brought on by emotions, more so than any changes in fundamentals.
In the long run, they were right to be long gold. They simply didn’t have the fortitude to sit. That 20% loss could have snow balled into a 60% loss. Just ask those folk who bought silver at $49.00 and watched it tank first to 32.50 and then most recently to 26.150 on September 26th. I bet you didn’t hear any thing out in the national media about silver losing half its value in between April 25th and September 26th.. That’s losing 1/2 of your money in 5 months… Only buying a house at the top of the Las Vegas Bubble would have hurt you in a similar manner… But again,,, NO ONE IN THE MEDIA COVERS THAT because you can’t blame silver prices on anything other than “EVIL GREEDY SPECULATORS”.. Supply and demand, bubbles and the emotions of “investors” are some how thrown under the bus in their analysis. Its quite interesting to watch, actually.
In my opining, although in my gut I hate being long gold, the charts tell us that we are headed to that 2033 level. So, is it more important to be “right” or is it more important to make a profitable trade. I vote for the latter.
Of course, this analysis may be wrong. If so how do you protect yourself? With 1) sell stops under your long futures or 2) buying call options or bull option spreads to limit your risk to a definite level. Then just sit back and watch.
When your local TV station, or better yet, Time Magazine has a cover story about owning gold, that will be the time to get out of your gold longs.
CER