Back from hiatus. As frequent
readers will remember, gold remains a core part of my portfolio (since
the beginning of QE madness from the FED). However, from time to time I
will take a trading position in the yellow metal when opportunities
present themselves. Well, that time is now upon us. I am buying GLD.
Why?
Gold has been in a downtrend since
reaching its high back in 2011 around $1913. Recent selling has been
initiated on the (I believe) false assumption that QE 3 is off the
table. Wrong! Another month of weak unemployment numbers will almost
certainly force the Fed into more QE (maybe sterilized in some form) to
force long term interest rates even more. QE=Money Printing=Dollar
Debasement=Higher Nominal Asset Prices. No rocket science here.
However, the market has failed to
realize that QE is back on the table. This case is especially true in
Europe where the ECB will be forced into doing more to stop the
bleeding. The European public does not want more austerity (outside of
Germany). They want more government spending financed by money printing.
ECB will initiate more QE or expand its current refinancing
operations.
Sentiment on gold is extremely
negative which from a contrarian perspective is positive. According to
the Hulbert gold newsletter sentiment index (a collection of market
timers) the crowd is now short gold-- Here is an excerpt, "Today,
in contrast, it is at minus 14.8%, which means that the average gold
timer is now allocating about a seventh of his gold-oriented portfolio
to shorting the market."
As
usual these professional market timers are almost always wrong. They
are bullish at the top of the market and bearish at the bottom. So I
will be happy to buy when they are shorting.
Obviously, gold could go lower, but the odds favor that we are approaching a major bottom in gold.
Asad Khan
Financial Analyst (CFB)
050-8774861
asad@cfb.ae
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