Gold

Longer term readers know I have been shorting the gold price periodically through
ETFs since Oct. '10. I have used small positions to generate good profits but have put
more capital to work after gold broke down so badly to the $1350 oz. level. I closed
out another short today figuring the gold bugz would scramble to hold support again
down around the 1350 level. At $1364, the spot price is now about 17% below its
40 wk m/a and since I regard -20% the 40 wk m/a  as a very large oversold, I had
another reason to book the gain. Weekly Gold Price

The bugz will be fortunate to escape another test of the $1350 level which is likely to
come sooner rather than later. The chart shows my view that the new battlefield for gold
is the $1550 - 1350 level. A simple view of the chart suggests this range could be in
place for an extended period, but as I said last month, gold is simply too volatile to
expect that to happen. And here we are already set up to test the lower end of the band.

There continues to be strong rotation out of gold and into equities. SPX Relative To Gold
The new QE program has been a boon to stocks but not to gold because the QE program
is bound by a relatively tight upper limit for inflation and because the CPI itself has
decelerated sharply from a cycle-to-date peak of 3.9% yr/yr for Sep. 2011 down to 1.1%
recently. This rotation is fabulously overbought as traditional equities players have left
gold to return to the old homestead. It will be fun to watch the relationship going forward
as gold is deeply oversold while stocks are getting heavily overbought.