Moment of truth time for the gold bulls and bears.
The Will it or Won’t It Break $1000 polemic is every bit as suspenseful as the buildup to Ross and Rachel’s first kiss was during Season 2 of Friends.
I don’t share investment ideas or make market calls on this site for compliance and business reasons…but I sure do keep score.
Right about now, the gold bulls, who have patiently sat in the yellow metal and its various stock market offshoots, are smelling vindication at hand.
They watched most other sectors of the market rip substantially higher this summer from the flatlands, as their fave commodity hugged the low 900’s like Linus with his blue blanket.
They endured all sorts of ribbing from the media and their colleagues as data point after data point indicated deflation, not inflation.
They also had to listen to that famous dismissal of gold as an investment by Warren Buffett repeated ad nauseum:
“It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
But your average neighborhood gold bull, in case you haven’t noticed, is walking with a bit of a spring in his step this week. He’s sensing change…and he likes what he senses.
On September 1st, remarkably, I stepped outside and immediately smelled the coming of Autumn in the air. From a monday to a tuesday, summer became fall…and my senses picked it up instinctively. In the same overnight fashion, something seems to have changed with the gold story from September 1st to September 2nd.
Gold has put on 30 or 40 an ounce since the middle of this week and some of the miner stocks have put on huge percentage moves as a reult. It was like someone switched on a light.
Everyone has a theory for gold’s big move:
1. Wedding Season (October) is coming soon for India (the largest buyers of gold jewelry in the world)
2. Hedge funds are in the pits chasing John Paulson and David Einhorn and getting long
3. The dollar has broken down technically beyond anyone’s wildest imagination and money is being scared into gold
4. A very well-known technical formation, the pennant, has finally been resolved in gold’s chart and the break was to the upside
5. China is boosting their gold reserves even further than what’s been reported
6. The Hunt Brothers have risen from the grave and opened a TradeStation account, let the cornering of the market begin
Okay, I made that last one up, but the others are just some of the memes making their way around The Street since Wednesday’s big move.
Gold’s bumped its head against the $1000 ceiling several times over the last 18 months, but I can’t quite remember any time when the overwhelming force of positive sentiment was quite this palpable. Many market participants are now dusting off their old gold plays, the ones they got bored with and sold to play the banks and techs.
And then there are The Faithful. I work with one or two of these guys and I’m sure you do as well. The guy who probably found himself nailed in my “…You Might Be a Gold Bug” piece (my gold bug friends loved it, FYI). The Faithful hung tight and can currently be found doing their stretches and warm-ups next to the track in preparation for the victory lap that they always knew was coming.
I feel like we will soon find out whether or not The Faithful are to be rewarded. If they are, it will be interesting to see how much beyond $1000 per ounce the price can be taken.
The technicians will tell you that $1000 is no longer relevant, that as a result of this week’s breakout it is now merely just another price like 987 or 1003. I would strenuously disagree, as $1000 is the number that everyone is watching, that will emotionally dictate all of the action, on either a failed attempt or a convincing breakthrough.
If TIME Magazine has finally run out of reasons to put Obama on it’s cover week after week (gosh they’re obsessed), the gold story might be a good substitute.
Things are finally getting interesting in Goldland, good luck to longs and shorts at the moment of truth.
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