Thursday, October 28, 2010

Gold (GLD) Looks Tired, and Silver (SLV) Continues to Outperform

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[please note, as always I am using the ETFs for charting purposes, since the commodities themselves chart with a 1 day delay]
One of the more crowded trades on earth (along with short dollar) looks tired at this point - that is gold.  While I agree for the reasons for the move, and with a Fed intent on printing us to oblivion this continues to look to have a multi year move ahead, I have not liked the short outlook as evidenced by my 'long dollar' exposure.  As I look at the gold chart it has broken below the 20 day and has been stuck near it of late.  The problem is support is not that far away, down there at the 50 day moving average so a short position does not have much upside.... UNLESS the 50 day can be broken.  If that happens than a floodgate of selling could occur as many of the recent buyers are 'weak hands' and just momentum chasers.



Silver on the other hand, not only performed better than gold on this run up (what a breathtaking run) but has yet to break below the 20 day.  This precious metal is more extended than gold so if the 'long dollar' trade catches on, a short position could actually be a bit easier here than gold.  



That said we know QE is coming, and from all accounts it will be some sort of front loaded turbo blast of $500B through end of year to early Q1 (next 3-6 months).  And then from there it appears Ben will hang a guillotine over the dollar by saying something like "we'll monitor it from there and see how much more dollars we'll add to the system each and every month from now to infinity....or when we see inflation.... or the bears are eradicated from earth" (translation: look at my bazooka Hank Paulson)  Hence I am unclear just how much these precious metals can fall under an administration hell bent on debasing a currency, and with an open ended commitment to it.  After Ben blasts through that first $500B, I could see him just doing another $50-$100B indefinitely (or maybe to the $1.5T+ level) as we "print to prosperity", since I don't see anything wonderful on the horizon in the real economy for 2011.

But in the short run, let us see how these 2 metals react to next week's fireworks.  I'm long gold in very small amounts just as a residual trade.

Long DB Double Long Gold in fund; no personal position


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