When I started my blog, it was not my intention to turn it into my personal trading journal. It was - and still is - my intention to bring market issues to the fore, stating my holdings in a position effected by the issue under discussion to fully disclose whatever conflict, and thus bias I may hold.
However, it has been my experience, when informing people of my profession, they would insist I proffer an opinion about the market or a particular stock or whatever I may like at the time. At first, I would freely offer my opinion because I love stocks and I love to talk about stocks. However, upon running into that person some time later when they would ask my opinion again, I would say something like "Oh, I blew out that position a while ago," usually at a substantial profit whilst the person to whom I had given advice had far less of a profit or a loss. As a result, I became hesitant to give my opinion to most everyone, and never to people I do not know or don't know very well.
This blog puts me into a bit of a quandary since I feel I must give full and fair disclosure when stating an opinion, and feel obligated to inform readers when I change my positions but would rather not disclose any trading lest people actually act on what I am writing. (God forbid. - ed.)
Which brings me to my gold position, which I re-purchased on Monday.
Last week, I stepped aside from the plunging gold market and liquidated everything I had. I changed my mind during Monday afternoon's session, and bought it back. This is what I wrote last Tuesday:
The Fed meeting provides a catalyst. With stocks running up into the meeting and commodities selling off, the risk of a sell-off in equities is high while the lows for commodities in this downdraft may not be far away, perhaps measured in days. But for now, I'm going to protect my capital.
Full disclosure, I am not convinced we have seen the bottom in gold, and will be quick to pull the trigger to blow out my position if gold breaks below the $846 low of last week.
So why buy now? Call it intuition, a hunch, a gut feeling, or just plain stupidity.
First, I feel we may have seen the bottom in gold. Gold fell 18% from its high six weeks ago. That is a pretty good correction. The last big downdraft in 2006 saw a 25% decline in a month.
The recent sell-off may be a similar one.
Second, the chart looks horrible at the moment, which is my biggest near-term concern. But the chart looked horrible in 2006 as you can see above. Buying when the chart looked horrible in 2006 was enormously profitable as gold fell to $550. Normally, I would rather buy great set-ups, but buying dips in secular bull markets - of which gold is in currently - is often a profitable strategy.
That being said, I will not hesitate to sell if gold continues to break down.
Third, gold is deeply oversold. Every time the Relative Strength Indicator for gold has fallen to 30 or below, it has been a time to buy. The RSI hit 30 last week, as you can see at the top of the chart below.
Also, look at MACD at the bottom. It is getting to levels not seen since the violent sell-off in 2006. (Oh, you're going to get people upset referencing MACD as an oversold indicator in the comments section! - ed.)
Fourth, investors have gone back to several commodities over the past few days with a vengeance. Oil broke all-time highs on Monday (though on light volume), and it looks like other favorites such as coal and potash are going to new highs in the near future.
Patriot Coal (PCX), which I own.
Arch Coal (ACI), which I own, but have been slowly trimming.
PotashCorp of Saskatchewan (POT), which I also own.
Now, the coal stocks look very over-bought at the moment and should pull back, but after the recent brief sell-off, investors have come back to these stocks hard. So why not gold too?
Finally, has the dollar really bottomed against the euro? It sure seems like everyone thinks so. But is everyone right?
Maybe they are, I don't know. I know I called the bottom of the dollar some time ago, only to be proven wrong. (Sell your gold! - ed.) And I still believe the dollar is in a bottoming process.
However, the gold bull market is not merely an anti-dollar trade. After all, gold has risen in all currencies over the past decade, and the secular bullish trends pushing gold higher remain intact.
Nor is it merely a fear trade, as gold has risen since the market bottomed on October 10, 2002 when it was $310 an ounce. In the 2002 - 2007 equities bull market, gold outperformed stocks. Which brings me to the action of the past few days.
Clearly, fear of a systematic collapse in the financial markets was one factor pushing gold higher over the past few months. Now that fear is abating (at least for the moment), investors had been liquidating gold and other commodities and buying risky assets. At some point, I believe the fear trade will end, and fundamentals will reassert themselves - they may actually be reasserting themselves now.
Over the past few days, the momo traders have been pushing up the old favorites - Google (GOOG), Apple (AAPL), Research In Motion (RIMM), Mastercard Inc. (MA), etc. In the meantime, commodities are bouncing.
It could be that the momo trade is getting long in the tooth and is about to end while the commodities reassert themselves. Or it could be that the momo favourites keep rising and so does gold, as happened during the 2002 - 2007 equities bull market.
The pattern of the bull market in gold has been to move sideways for some time before exploding higher. We may now be in a consolidation phase, and thus gold is likely to move sideways for awhile. However, until shown otherwise, we are still in a bull market for gold, and I want exposure - at least today. But then again, I could always change my mind again tomorrow.
Note: One reason why the metals are rising is because power is being rationed to mines.
