Stepping Aside in Gold

I am a commodities bull, but I think gold is breaking down here, and may fall into the $725-$800 range over the next few weeks.  Or it may bottom at $850, I do not know.  But I do not like the chart right here, so I've liquidated my position and will wait for an entry point. 

I hate doing this because the metal is getting oversold, and I hate selling into oversold markets.  The problem is, however, that gold became much more oversold in the violent sell-off in 2006.  That, of course, was a tremendous opportunity when gold hit $550, and if we get another such sharp decline, that too will be a buying opportunity.

I believe that the top in gold prices is yet to come.  You buy the dips in a bull market, and I intend to do so as the dip goes lower.  However, if I'm wrong in my thinking that there is more downside to come, I will not hesitate to buy back my position at a higher price. 

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. 

Comments

[psychodave]

Toro, your "The Fed meeting provides a catalyst" prompts a question from me.

This
http://www.clevelandfed.org/research/data/fedfunds/index.cfm
leads me to anticipate a 25bps cut.

What would you anticipate from a 25bps cut versus a zero bps cut in the Fed Funds Rate?

As for me, I weight much more heavily the new Fed facility that makes loans to investment banks for "weaker" collateral. I anticipate support for stocks and commodities at current levels as long as that credit is available.

Near as I can judge, I don't anticipate the Investment Banks will be using the money to invest in productive assets or anything.

[Toro]

Dave

Sorry I didn't get to this sooner. I've been busy at work.

I figured 25 bps and a statement that acknowledged the economy's weakness but also more hawkish towards inflation. Ultimately, I think a signal from the Fed that it is nearing done this rate cutting cycle is bullish for stocks. However, we didn't get that today.

I do agree that the facilities, or at least the idea that the Fed will stand behind the market, is helping. However, that does not mean we eventually go lower. The End of the World Trade may be unwinding, but The Economy will be Weaker for Longer than we Think Trade is not baked into the market.

T.

[Alan von Altendorf]

I'm with you on the gold call. Sold at $950-$970, waiting to buy in at $820, maybe $840. I'll buy and hold all the way down, no matter how low it goes. The Sustained and Serious End of the World Trade has yet to come. Think about extrinsic shock.