Let’s take a step back and talk about what a huge waste of money I think it is to own gold. It’s not just that I don’t think it goes up in value, it’s more about what else we could be doing with that money. It’s the opportunity cost here that I believe burns the hole in your pocket. Will our money be treated better in rocks or in stocks? I still think it’s in stocks.
In early October, I put out a note reiterating why we wanted to be selling gold. This is after over a year of a bullish approach towards the yellow metal. So to be clear, I am not a gold bug or a gold hater. The truth is that I couldn’t care less whether gold doubles in price or gets cut in half. It’s not my problem. For me, Gold is just another asset in a humongous world of many assets. If you think it’s anything more than that, I believe you’ve already lost.
As a reminder, a big reason why we were so bullish of Gold throughout the 4th quarter last year and beyond was because Commercial Hedgers had on their largest net long position in history. Commercial hedgers in Gold actually hedge. So the fact that they were net long was a huge tell. This, coupled with the fact that I was incredibly bearish of stocks at the time, made Gold one of our favorite long positions.
Today, the exact opposite is true. I’ve been one of the more vocal stock market bulls throughout the Fall. Commercial Hedgers built their largest net short position in gold of all time, AND Gold hit our upside objectives. There is no, and has been no, reason to own rocks this Fall.
Here is the brick wall that Gold ran into, which was former support back in 2011-2012 before breaking down in 2013. The Principle of Polarity is one of the most important concepts, not just in technical analysis but, in understanding market behavior period. [Read more…]