Top Watch: Gold Finally Yields
December 14, 2009
Funds Take a Shine to Gold
“Diversified stock funds have been purchasing actual gold bullion, and also piling into gold exchange-traded funds and stock of gold-mining companies. They have been doing it partly as insurance against a worrisome monetary situation and possible inflation, and partly to goose their returns.”
“No one expects gold to plummet the way it did in the 1980s, from $2,300 per ounce in 2009 dollars to $298….” – WSJ
The market sentiment service sentimenTrader has four indicators for gold. Three out of four are solidly bearish, and the fourth is neutral. For instance, their Commitments of Traders (COT) indicator reads clearly: the smart money (commercial hedgers) are net short of gold. Everyone else (mutual funds, hedge funds, and individuals) is long–really long. I have been bearish on gold (and likewise bullish on the US dollar) for months and have been wrong, but I believe the tide has just turned.
Dollar-denominated deflation is about to come roaring back. If you doubt this, look at the currency and bond markets. Zero Hedge reports that T-bills again yield exactly nothing. The dollar is rallying strongly. Gold, playing its part, is falling. These are ominous signs for both lenders and debtors alike, and the message is, “Own some cash, Dummy!”
For more information on how to protect yourself from a deflationary crash, I strongly recommend Robert Prechter, Jr.’s book Conquer the Crash.
Sources:
“Funds Take a Shine to Gold,” Larry Light, The Wall Street Journal, 12/12-13/09, B2
