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What Say You, Gold Bugs?


If the technicals were to play out, gold is showing risk back down to the major $700-725 breakout area.

Yesterday afternoon I vibed that the move in the long bond (@US) looked way overdone, and so far today the 30-yr is obliging by giving back much of yesterday's gains. The primary - if not sole reason - for the sudden U-Turn is that I did not heed my own thinking, but rather I am a dumb spectator to some nifty gains gone by.

Recriminations aside, the turnaround in the bond looks as if it's being confirmed by moves in the Japanese yen and euro, both of which are giving back portions of the latest ramps, which brings me to the real reason for this post: Gold.

I've been on record for years as a deranged believer in an ultimate Dow/Gold cross, i.e. a time when the price of the Dow Jones Industrial Average (DJI) will cross with the price of gold. I'll leave the level up to the gory imagination of our readers. But before we get there, there will be (and we have already seen) many violent ups and downs, including another one which seems to be at hand. What gives me serious pause is the direction of the next move: technically gold shows a freakish double-top looking chart; while structurally and fundamentally we have to contend with the unknown brain spasms likely to emanate from Boom-Boom's ever foggier head.

If the technicals were to play out, gold is showing risk back down to the major $700-725 breakout area, not only as a "normal" pullback to new support, but also as a projection from the break-down of the "double-top" formation. It would not change in any way, shape or form my longer term view on precious metals, but it would be enough of a move that it needs to be traded.

On the other hand, Boom-Boom's mental gyrations provide a potentially overpowering, if invisible, catalyst for a moon-shot higher. This is based on my humble opinion that a "surprise" appearance by the mad interest rate slasher will not put the greenback back on firm footing, but rather will send it into a peso-like spiral, in an overt effort to debase, rather than repay, our overbearing debt load.

So how to play this "either or" scenario? Not coincidentally, I am going back to the theme of playing an increase in volatility more so than a directional call. I say not coincidentally because it is at least logical that the wild swings we are seeing in equities (as liquidity shrinks) are likely to eventually spill into other asset classes as asset alligators try to figure out which side of the hyperinflation-deflation argument will ultimately prevail.

Playing both sides of the field is of course far less rewarding – and more mentally tiring – but I continue to subscribe to the view that at times the easier, more prudent gains are a much better gamble than an all-in play.
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