a golden bubbleI traded a lot of gold 20 years ago. It was $350-400 Comex scalping paradise, where out of 30,000 total I managed to execute up to 3,000 in-and-out or 10% of futures total, on dull days. Maintaining an open arbline to gold pit - but being physically off the floor - allowed me more of a neutral perspective…

Fast-forward to summer 2010: gold effortlessly straddles $1250 record. I get a lot of Bullish mail, including people I haven't heard from in years: do I know best ways of securing bullion? Hmm… A dear colleague implores: "gold goes up when it's supposed to (declining dollar, market panic). Gold goes up when it's not supposed to (rising dollar, low inflation). That's textbook bubble behavior. There's no story on the table right now which might kill gold…why don't you stop fighting the bubble … and when this bubble bursts, there will be years of bear market rallies to sell!!!??" Explaining that I'm watching neutral from sidelines, I add: my original $1250 post was based more on my feeling THAT DAY that Bulls got WAY SLOPPY… I'll post if I see something interesting.

Immediately come consecutive daily rises into June 21, and I feel compelled to post my second heads-up of the year: "Are Gold Bulls getting sloppy again at over $1266?" What prompted me that morning was an unmistakable way the chart action was unfolding, complete with classic newsletter analysis of Sunday June 20, that I felt important to share (from Gold Scents, by Toby Connor).

And now for the query of the day: has over-90% Bullish consensus (of June 20) been broken?

Craig Mee writes: 

What is interesting is the fact that when gold snapped below 1240, and got given for more than 40 bucks, that in 9 subsequent trading days, it failed to get stuck into that days range in a meaning way. Volatility didn't seem overly massive in turns of ATR, at the high… therefore you would tend to think this move was something of a wash out, but Anatoly was dead on in that gold started failing to be bid on the growth story and that was a big divergence from the previous trading pattern. Where's it going? Who knows, but I'll just be trading the price. 

Jason Ruspini adds:

When one looks at gold as a % of global fx reserves or as a % of investable assets or monetary aggregates, it doesn't look like a bubble. Gold bears could have saved themselves some money if they had just gotten over the fact that yes it's relatively useless and negative carry– but that explains why gold does well. It does well when opportunity cost, real rates of return, are low. Yes, insofar as yields may "break out" in the next couple of days, gold will be less attractive. The next day some macro number may end that perception. I tend towards the idea that the long term bet on gold is a bet that real rates of return will be low relative to the 20th century. Granted, this is based on insufficiently tested ideas about demographics, globalization and technological rate of change.


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