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Three Reasons to Short Gold Now


Time may be running out for the yellow metal.

Technically a bottom in the dollar seems to be lining up with the transition in the above-mentioned fundamentals. Although I am not a follower of Elliot Wave Theory I would note that Robert Prechter has come out recently predicting a major bottom for the dollar based on his wave theory.

Aside from the wave count, he has also cited the incredible statistic that the Dollar Sentiment Index is registering only 3% bulls, one of the lowest readings in 20 years. Note that in March of 2008 when the dollar bottomed, the Dollar Sentiment Index registered 5% bulls. This compares to a reading of 93% bulls in March of 2009 when the dollar topped.

Thus, technical and fundamental factors are converging in favor of the US Dollar. Gold will slump in response to a rising dollar for 2 reasons: The first is that the US dollar collapse thesis has been a major underpinning for gold and this thesis will become thoroughly discredited. The second is that a rising dollar means that gold becomes more expensive in the rest of the world and the vast majority of the world's demand for gold is outside of the US.

Longer term, I am even more bearish on gold for reasons I plan to expand upon at a later time. However, for now, I am going to initiate a relatively modest short position as I am not entirely certain on the timing. I would ordinarily have liked to short gold nearer the $1,000 threshold. And I do not necessarily see a micro-term bearish catalyst.
I simply think it is time to start averaging in on a short gold position. This can be done by shorting GLD, GDX, or going long DZZ which is a double inverse gold ETF.

Using GLD, I would probably short it again at around $96 and then all the way up to $100. A stop could be placed a few dollars above that level. On the downside, a violation of $89 and then $85 would warrant increasingly aggressive shorts as it would signal a potential major breakdown in the yellow metal.
No positions in stocks mentioned.
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