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January 6, 2010

Game Changers

Just a quick post here before some dinner guests arrive. The precious metals rally is obviously growing legs. It seems the odds are highly in favor of the next leg of this parabolic run being in progress. If this rally behaves similarly to previous cycles... which thus far has very much been the case... gold could run to new highs without even a breather. If this extension emulates previous cycles in measurement, as well, we'll be looking at a gold price of $1400-50 within three months.

That said, I expect this rally to behave differently. For one, I believe the liquidation event of 2008 separates the first a second phases of this commodity bull, and during this second phase, precious metals will be the primary winners. The past year has supported this idea. As such, there is plenty of potential for metals to surprise to the upside. The fuel is certainly in place for a mega-run, as well. President Obama is about to unleash the remaining $500B of stimulous money approved last year. Why did he wait so long to put that money in the system? Why, to juice the mid-term elections, of course. I believe the current run in gold is discounting this fiscal folly.

Personally, anything shy of $1500 for gold and $25 for silver on this run will be disappointing, but the study of previous cycles at least gives us some minimum expectations. My precious metals portfolio currently includes silver futures, junior mining shares, and warrants and options on mining shares. I beefed up my silver late last week and added the options yesterday. Depending on what I see, I may also add some gold futures options.

As for stocks, the negatives continue to pile up, but the kind of rally we are witnessing is stopped only by exhaustion, not technicals. In any case, the NDX was relatively weak today. It's only one day, but nonetheless could represent a warning shot. The spyders saw another large selling-on-strength figure, so the big fellas are continuing to lighten up. Also, Treasuries broke sharply lower. Keep an eye on that 113 level. If the 30-year loses that support sooner than later, we could be looking at a game changer.


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