Wednesday, November 16, 2011


Before the markets opened today, I wrote that I am long gold with a very tight stop. Once the markets opened, the stop was triggered and I went out of gold. I believe in the long term higher price of gold. From the following chart you will note that gold is in a rising channel.

However it is now near the upper limit of the channel and even if gold were to correct another $ 90- $100, it will still be in a bull market. I am waiting for a better entry point. I think gold is safer place to be vis-à-vis equity.

For now gold is mirroring euro.

 In other word, it is moving opposite of US$. But a time may come, when gold and US$ will move in tandem. That will happen when investors flee euro and look for a safe heaven.

“Euroxiety” has taken centre stage and the Fitch comment at the end of the trading session spooked the markets. But Fitch did not say anything new, which we were not aware of.  Markets are anxious and the yields of Italy, Spain keep rising. Tomorrow is another big day for bond selling by France and Spain. Everyone would be waiting to see what the yield is. ECB would have to pump in more money tomorrow. How long and how far they will go, is the question.

In such a scenario, hedge funds and mutual funds would first sell their portfolio that are profitable and will hold on to the “not so good” part of the portfolio.  So we see Paulson & co , the largest holder of GLD selling its GLD shares and holding on to BAC shares.

The situation is rather scary and the 1st priority is not to lose money.  

For now, Cash is King.

Going through correlation between various currencies and gold, I found that gold has a better correlation with AUD, even better than Euro.
Gold has now gone down further and has taken out the channel support. If it breaks $1745, the next level is 1675. lets watch AUD carefully.