just finished reading Ben's speech. the 2 most important messages i heard was 1. no more direct QE and 2. the need for more fiscal discipline.
No more direct QE was pretty obvious - too much opposition. Calling for fiscal discipline is just lip service unless actions are taken to back it up. Without political backing in conjunction with monetary tightening, there's no action.
Also, saying that the deficit needs to be fixed in a way that doesn't hinder the economy is like telling someone with a dislocated shoulder to pop it back in without causing any pain. Not possible.
What struck me more was the suggestion that they'll do what's needed to assist economic recovery. To me, that says it's going to be more of the same, just not immediately; maybe when the markets have crashed a little further from where they are now, or the crisis in Europe moves to a breaking point.
Of course, that's all verbiage. A liar can keep lying until he's blue in the face and there still won't be a consensus on whether he's telling the truth or not. That's a politician's job, or in this case an economic head - placate the people/markets. It's exactly what happened: treasuries and gold are steady, equities aren't entirely spiraling out of control and the dollar is relatively steady as well - mostly because it wasn't thrown under the bus.
If you look in the right places, you'll see that the story is quite different. A duck might look calm while on the surface of the water (Bernanke speaking), but underneath his legs are kicking like mad to move him around (extreme volumes, open interest and statistical concentrations). The same is going on behind the scenes. Again, I'll defer to Eric De Groot in examining spread trade statistical concentration
The more spread trades put on, the less investors' fight-or-flight mechanism is certain of which way to go. That means that there will be fewer on-board when the train leaves the station, at least when it comes to position size. Most have either lightened up their long positions, closed out entirely, gone short or taken hedging/spread positions. Where was all the selling coming from during the 23rd and 24th? Was it just longs taking profits or was there a helping hand flooding the market with short positions? What happens when those shorts are covered or take profits?
All this week during the $200 gold decline, I can almost guarantee that commercial trading positions (bullion banks and other big players) have been accumulating on the buy side; frustratingly, we won't know for certain until next
week's CoT report. The price will be pushed up and as the current shorts cut their losses, the covering will provide the additional selling for those commercial interests to buy into. As the price rises, existing longs alongside the commercials (like me!) will add to their positions while additional 'dry powder' funds will come in. Momentum buying will carry the price further until the retail suckers pile in (mostly from fear of missing the ride up) and cause another spike high well above $2000/oz.
With that happening so shortly after such a large run-up already, down comes the bullion bank hammer (assisted by margin increases and negative media) and flushes all the doubly-weakened spiders out. Calls of the bubble top will make the rounds yet again after a near-$1,000 drop occurs (~30% or so corrective declines are normal
on the way up). This time, enough cumulative froth will have been built up that many will decide the insane volatility and $200 price swings aren't worth it, so there won't be as much resistance on the way down as there was this week (picture a clean left hook followed by a solid uppercut). An outside reversal to the downside will be painted for the remainder of 2011 and the price will rise on a gentle slope until the low-liquidity end-of-year games.
These annual games are shaping up no different from other years, just with a progressively earlier and stronger resistance to their efficacy. It's the market forces that make things happen, not the speeches given at Jackhole or from the White House. Those are reactionary, taking credit by responding to what they can no longer control or hide.
As long as you've still got some physical metal, trade paper all you want. I'm trading paper to get physical.
another way to look at the difference in opinions here is that I and S3052 believe in investing countercyclically, ie, selling on the way up before the crowd and buying on the way down. or should i better say trying to pick tops and bottoms? most others here believe in trends and momentum.
of course others will just say they are following strong fundamentals which won't change the course or direction of the gold market. this will take time to play out.
All of those factors matter. Right now, short-term trading is immensely dangerous. For example, I managed to squeak out 50 pips profit by shorting USD/CHF at 0.8120, but doing so regularly would be a fool's gambit. That type of short-term counter-cyclic trading only presents opportunity once in a while.
For momentum, I'm riding the 11-year gold bull which doesn't seem to be ready to take a major pause quite yet. You're right, it will take time and is the long-term play. Short-term there isn't often enough room for momentum to build, which is why hedge funds are shredding themselves apart as technical indicators keep getting falsely triggered.
Use the appropriate technical strategy for a market as long as you have a solid understand of each respective market's fundamentals; swim perpendicular
to a rip-tide
, not against it.