Thursday, December 11, 2008

Gold bugs freakin???

Hey all

JB3 here.

Firstly, a bit "WELCOME BACK" to Sol. Good to see you back in the action!

Secondly, here's a chart of SPX and GLD (essentially tracks the gold price), following on from a comment I made earlier today. SPX is black. GLD is blue. Ignore the trendlines.

What's clear from the chart is that Gold is feeling some of the deflationary effects that the broader financial system is reeling under. The trend is clearly DOWN (unless a new trend is just starting, of course).

Checkout the pink boxed areas. The gold price seems to give an early warning signal of a big downmove. It looks to me as though some gold bugs, as they catch the smell something putrid in equities, and start running a strong bid for gold, and once the bottom hits in the indices, the deflationary trend absolutely punishes the gold bugs in a very swift fashion.

And that seems to be happening again right now. If this analysis is correct, it's supportive of Atilla's call for 500 or below.

One day this may change of course, especially if Helicopter Ben comes good with his threat to destroy what's left of the long-term prospects of the US economy by printing enormous quantities of unsterilised paper or electronic cash in a 'it-destroyed-every-other-country-but-don't-worry-that-won't-happen-to-us' fit of emotional panic masquerading as brilliance. Then gold would be given every opportunity to embark on a new bullish trend. Right now though, I think the printing is pissing into a very strong deflationary headwind.

Just my 0.02


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