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November 3, 2009

Base Jumping

Precious metals made it perfectly clear today they don't care about any rally in the dollar. With the DX up strongly this morning, gold and silver were advancing, and their resolve only got firmer as the buck coughed up half its gains. Let's zoom out to the weekly view on gold and see what can be inferred.

weekly gold chart

Price tends to get attracted to big, round numbers, so with gold sitting within spittin' distance of $1100, it's a good bet we'll get there at least on an intraday basis. But perhaps the action will stretch just a bit further before the next pull-back:

gold chart

Once again, the value of holding a base position in a bull market has proven itself. I have a feeling last week's scary ride, particularly in mining shares, induced a few folks to jump out of what they previously considered to be base positions. I have no intention of base jumping until we are at a much higher altitude. I'm not even sure my parachute would open from this level!

None of this action takes away from the game plan to await the end of dollar's counter-trend rally before getting leveraged. In the late stages of the move, I suspect many will think the dollar has been rescued, and we could be in the midst of a scary correction in precious metals, perhaps even seeing gold back-test $1000 one last time. I will be buying that correction.

The equity action was tepid. If a larger sell-off were coming, stocks could have used today's dollar strength as an excuse to sink. Perhaps the prospects of milk and honey from tomorrow's FOMC announcement held things up. If the dollar is rallying when 2:15 rolls around, I would be very scared to be holding equities long (non-PM equities, that is). If the Fed is not accomodative, we could be looking at a fast adjustment.

There will be no post tomorrow. My fiancee and I will be out helping my parents celebrate anniversary number 42!

 

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