Friday, December 15, 2006

Gold Bust

I've been in NYC for most of the day taking care of various and sundry end of year matters. A few quick comments on gold with detailed comments and charts coming on Sunday night. I've let a lucrative shorting opportunity fall by the wayside here over the last few weeks because of my long term bullish bias and fondness of gold. I've been out of the metal in the futures market since being stopped out more than a few weeks ago and have chosen to be neutral instead of objectively riding it down. That's still better than being stubborn. If I had stuck to a bullish wrong way Amaranth style futures bets on gold, I would now be living in a GE refrigerator box, though a larger Sub-Zero box would be preferable (Disclosure: Very happy owner of a Sub Zero 642 so brand loyalties would run deep even in selection of cardboard shelter). However, we pay heed to technical indicators and fundamentals in order to avoid trading disasters. The signals were clear a few weeks back that gold was overbought and that it was time to take a break, so I'm still here in a warm house and now noticing that gold is not only below $620 again, but below late summer support and in even more trouble. So the charts are, in my opinion, measuring a retest back towards $600 over the next few weeks. It looks like late summer all over again with bearish momentum beginning to snowball, but maybe with the saving grace that dollar woes will resume soon enough in the New Year to save the metal from sliding back to $565.

The frustration of the gold bugs is palpable - take a look at the remarks on the jsmineset website... (click here) in characterizing today's selling as "mad, mad, mad". It was and is just that in light of macro fundamentals, but isn't that what 21st century mass market psychology is all about especially in these 'interesting times' in which we live? The game is as much about being right about the fundamentals as it is about being right about what the consensus expectations are. My nutty put options trade a few weeks ago in Toll Bros was a good case in point. Evidence that real estate is rolling over further are everyone and I figured that the nice rally in the premier homebuilders would have to crest. Clever deductive reasoning, or so it seemed, but WRONG in spite of the evidence. Toll rallied after results because the crowd didn't think things were bad enough. The time will come for another harsh spanking for the Tolls of the world, just like the time will come from another leg up for gold. But being early when the market isn't ready means pain.

While I've been a gold bull for years, I think today's selling will be hard to quickly arrest... Barring a sudden geopolitical maelstrom, which is an unpredictable factor that can always argue for avoiding a gold short, it looks like gold is on its way to a retest of $600/oz, or so the charts seem to indicate.

More on Sunday.

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