| |
Lock(Step), Stock, and Two Smoking Gun Barrels
|
|
|
Last weeks' article was a follow-up on gold-philosophy – with the postulation that gold will not engage in a real, sustainable, long-term bull run until the general mentality towards gold has changed in the mind of the average investor.
This article will be brief – judging by the sheer volume of emails I have received since my last article, most of you already know my mid-term thoughts on the price of gold. However I want to present a few points of data to solidify the following: Gold's price-movement toward the cosmos is not the result of a true bull market but a mini-speculative-mania based on a number of factors discussed previously.
Now that you know the case, I present for you the smoking-gun barrel.
These two new-found soul mates, gold and the Dow 30, should tell an astute viewer that whatever psychological force drives the Dow upward also drives Gold at this point in time. Furthermore, that whatever justification is being used to buy either stocks or metals (i.e. economy is recovering, government is “printing money”, etc.) is simply an eddy in the current of the mood of buyers and sellers.
So for all of you gold bugs out there who claim the Dow is going to make a new low while gold joins the ranks of Neil Armstrong and Buzz Aldrin, it might pay handsomely to examine the data a little more objectively and draw a conclusion from it.
Furthermore, there is this:
From the 2002-2009 Commitment of Traders Report.
Date |
Open Contracts |
Long |
Ratio Long/Short |
25-Nov 2008 |
276,657 |
115,014 |
3.47 |
18-Nov 2008 |
289,700 |
111,063 |
2.40 |
11-Nov 2008 |
293,831 |
116,351 |
2.22 |
|
|
|
|
24-Nov 2009 |
521,253 |
294,780 |
9.08 |
17-Nov 2009 |
533,119 |
284,390 |
5.84 |
9-Nov 2009 |
530,505 |
280,398 |
6.62 |
In November of 2008, The gold price traded between a range of $975.00 and $700.00 – quite the range yes, but certainly nowhere near the $1200.00 mark.
Fast-forward 12 months and you end up with a very different looking picture – open contracts on futures are up almost 100%, the long to short ratio is double, and long contracts as a total percentage of contracts are up from 40% to 53%.
In short, have you ever heard of the true financial price/demand curve? I'll leave you with it and perhaps touch on it next article. Stay safe out there, dear gold bugs. You might have a new appreciation for FRN's in 6 months (I know it makes me sick too, but there it is!).
All the best.
J. Derek Blain
****
Derek Blain has been trading since the day he was old enough to open his first brokerage account.
|
