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Gold: Stronger for Longer?

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What to do at this stage in gold's journey.

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Believe me when I say this, and here's the risk, in a perfect "hedge all paper assets world," the price of gold is far higher, no 300 or 1,000 points can do that scenario justice. Short of that outcome, there's risk, and that risk grows with every dollar gold rises.

Clearly much of gold's assent has been discounting those odds, accommodating for an increasing number of insurance policies against a growing backdrop of sovereign debt concerns. To fully understand its ultimate potential, look no further than the US fiscal situation, our entitlements, our hesitant politicians, our fixed special interest strangleholds, and struggling tax base. Consider our debt-to-GDP levels, deficit as a percentage of GDP. The story isn't all that different from Greece, Italy, and Spain. Then, understand that the US dollar has risen sharply, despite these deep-rooted realities, as global investors have essentially "fled the competition." This phenomenon should comfort no one. Ultimately, the bond market vigilantes show up, with good reason.

It should be clear now that if we're witnessing the beginning of phase 3 of a gold move, this significance is more important than having caught the last 300 points or having sold out at 1240 and now finding oneself frustrated. Anything really.

No, to me, a case is building that's far more important than that. There is, most certainly, time to adjust for the future. I'm not saying buy gold right here, right now. I think we at least hit 1210, where I have a bid for a little more, keeping obvious and necessary powder dry for even more on the downside.

However I'll take yet another piece there, consistent with my long standing practice of buying down moves, best I can gauge their eventual depth. Phase 3 considerations are telling me to take a small stab at some more there, despite the horrendous seasonality of buying gold in mid-June. Yes, and this is important, it will serve as another clue as to gold's ultimate intentions, June is seasonally a very bad month for gold, as is May. In the past, gold has rallied almost every July, from a beating of course, and my eyes will be fixed on this June and July.

A final point. The backdrop of US Treasuries is the most important gauge as to gold's risk, and ultimately, its potential. Every dollar gold rises is another dollar it will fall if the piper fails to show up at America's bond market in time. Conversely, every dollar gold rises increases the natural odds that the piper will show up one day. And it should be clear by now, if it happens to America's currency, uncollateralized paper, on a global basis, will need a major readjustment. It is, after all, still an experiment!

Short-Term Considerations:


Buying gold at 1210 (just a little) -- the equity market may be forming a bottom. I've been buying Australian dollars, natural gas, and copper; still think the Dow wants to peg 8800-9250 though, taking sales. Been covering some of the Direxion Daily Financial Bull 3X Shares (FAS) short even though I know it's destined for doom. It was a good one for any of you who followed me on this. Big gains.

Still think silver wants to peg 16.50, but this price is in comparison to phase 1 and phase 2 corrections that plunged it to sub 10. A 16.50 base for the future would most certainly be a prominent step forward for silver bulls, myself included, who have held through the mirk and the muck.

If gold breaks 1200, I'll post something new. But for right now, I'm starting to get it, stronger for longer, and that's why I wasn't surprised in the least by its recent marginal new high and ensuing 40 buck decline. The stronger for longer thesis only works if we can avoid a price parabola. And for an international commodity, it's essential to check the price of gold in all major currencies.

The euro's price scares me, I admit it, though long-term charts seem sufficiently intentional and fair. Any price break in Europe could persist as perhaps the euro strengthens and gold weakens sufficiently to restore balance there. This is the wildcard. But it's also where the heart of sovereign debt defaults is beating the strongest!

Ultimately, the safest strategy, the one I've used, is to have a certain amount of gold and silver that's never traded under any circumstances. One adds on down moves, and takes sales on the extras into strength. During confusing times, one is never empty handed, always carrying a base commensurate with one's risk appetite, personal assessment of the paper money experiment, and desire for insurance.

Right here right now, I think risk and reward are balanced. It's not a time that I'm adding a great deal to my positions (will take some at 1210ish if hit today), but I'm not selling either. As stated before, gold could clearly drop 100 bucks if the euro were to strengthen so keep powder dry. For now, I don't see much more risk than that.

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Position in gold, silver, FAS, copper
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