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Let’s Talk About Gold

Gold, Gold, Gold! Who is not talking about Gold these days? The Gold trade has become the crude trade of the Spring and Summer of 2008.  Back then Crude was all the hype. Everyday people who have little or no knowledge of the markets had begun to watch the prices of crude. Obviously they were concerned of what it would mean to them at the gas pumps but these everyday people were calling up their brokers and telling them to get them involved.

Today Gold traded to yet another all time high and closed at $1212. The coverage of this rally is being broadcast everywhere. Analysts continue to raise their price targets to numbers that seem absurd. Peter Schiff, president of Euro Pacific capital is claiming that by the end of President Obama’s term we may see it at $5000 an ounce!

Now, I have been trading long enough to realize that you can not stand in front of a moving train, however, I have also been around long enough to know that the “smart money” is already involved and normally sells into strength as the “retail” investor chases the move. In that run up in crude in 08′ , analysts were saying $250 a barrel of crude was coming near term.  As we know now, that never happened , but instead it traded down to the low $30’s.

My point here is that, yes, the order flow is up and it may trade higher, but we must realize that our markets in recent years overshoot both to the upside and the downside . This momentum rally will end at some point, leaving many “holding the bag” and once again Wall Street may have to answer some tough questions.
For now, be careful!  You can trade the long side, but be prepared for that inevitable pull back that will come at some point!

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