Pulling back on gold… for now

Perhaps I’m just a no-good trader.  I know Dennis Gartman has been calling for a pullback in gold since at least May 18, 2010 if not longer, but that didn’t phase me at the time.  Right now, the GLD has risen from 121 to 131 in less than a month – and the fast moves up typically lead to short-term pullbacks.

Here’s the basic chart with the 200-day and 100-day moving averages on it.  Note that although gold was able to move up 30% from Sept ’07 to Mar ’08, this was after a long correction from 71 in May ’06 to 69 in Sept ’07 on the GLD. 

With the idea of “Currency Wars” going mainstream, combined with the prevalent view that the economy will muddle through toward a recovery which will gain speed and a double-dip recession is out of the question, I honestly don’t see how any news could come out that will be short-term bullish for gold.  On the other hand, if the fed is more cautious on monetary expansion than expected, and the mainstream traders begin to realize what the fed already knows about deflation risk and a slower-than-expected recovery, gold could certainly be in for a corrective phase in the near-term.  Note that I’m still long-term bullish on gold, but I did sell out today to avoid a short-term pullback.

I’ve got some more technical information for you to chew on, but since it is all from today’s Rosenberg newsletter, I’ll just quote his section on this verbaitim:  There are now, according to the latest Commitment of Traders report, 79,796 short contracts on U.S. Treasuries on the Chicago Board of Trade, and there are 78,361 long contracts. So how is that a bond bubble exactly?

There are now 70,638 speculative long contracts on the Chicago Mercantile Exchange for the euro, versus 35,308 net short positions. Come again? There are twice as many bullish positions on this piece of you-know-what as their bearish contracts? Yikes! The dollar is hugely oversold here.

And there are now 297,272 net speculative long positions in gold on the COMEX compared with 39,623 net shorts. This has become a very crowded trade, my friends. Silver is far less on the radar screen.

There are also nearly twice as many speculative bulls as there are bears with respect to copper. The global boom trade is on.”

Personally, I sold all my gold today which was quite a bit – I had 50% of my (meager) portfolio in it since last year, and I’m holding the cash on the sidelines.  With such a great month for stocks, bonds, and gold in September – along with the weaker dollar – it seems prudent to hold some cash until better opportunities inevitably come.

“There is no doubt that we have commodity prices firming, a weaker U.S. dollar and a monetary policy that seems aimed at reloading the gun. These are inflationary tailwinds. But we also have contracting bank credit, a 6% (and rising) personal savings rate, a 6.5% output gap and core inflation already south of 1%. These are warning signs, and the Treasury market refuses to sell off, which has thus failed, to ratify the great inflation trade.

About johnonstocks

I've been trading stocks since 2003, active on Motley Fool's discussion boards and using first Hidden Gems, then Global Gains. I no longer have the newsletters, but I keep up on the WSJ and read David Rosenberg everyday at gluskinsheff.com. Education: CFA level 2 candidate MBA-focus in Finance, Marshall, University of Southern California - expected Dec 2010. BS Mechanical Engineering, UC San Diego, June 2002
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