1) Sentiment is too bullish. This is a one sided trade and in my opinion sentiment can only shift to the bear side. Im sick of seeing and hearing the commercials for government gold. This has to be a sign of a top in bullish sentiment.
2) Comparison valuations are very high. If you compare the spread relationship of gold to stocks or gold to bonds or gold to CRB or gold to the dollar index the valuations are at historically high levels.
3) Seasonally gold usually peaks around this time of year and troughs around July.
4) The commercial traders aka hedgers have been selling. This is the smart money in the market and historically it pays to trade in the same direction as the hedgers.
Last year around this time of year was a good example of the last time gold was relatively expensive compared to stocks, bonds, $ index, CRB index while near a seasonal peak with commercial traders selling and sentiment was extremely bullish. The bearion I mean bullion declined around 30% after those conditions were present last year.
Gold looks like a good short down to around $900, Id use new highs as the stop.
2 comments:
I would feel more confident if you supported your opinion with a system trade supported by probabilities (as you usually do).
I recently came across some info for trading gold utilizing the 40 day EMA and the GDX:GLD ratio. The trader presenting the info suggested the higher the ratio combined with p > 40 day EMA the more bullish the argument for gold.
Can you post a link to that info, Anonymous?
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