Tuesday, May 4, 2010

Buying Yesterday and Today

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This morning, I am buying back into the Gold patch. I bought GDXJ bullish call options and AUY bullish call options with previous profits as I had planned the other day. I believe we are headed higher in Gold and Gold shares regardless of the general stock market, which I remain bearish on at current levels.

Yesterday, I couldn't resist opening my first bearish position on equities in a while. It is a small position, but I went with major leverage in case the trade works out. If it doesn't, my losses are limited. I decided to play with fire using the triple levered commercial real estate ETF put out by Direxion. Because these levered ETFs suffer from "decay" over time (i.e. better used for day trading than buy and hold), I decided to buy August puts on the triple levered bullish ETF (ticker: DRN). This way, the decay has the potential to work in my favor once commercial real estate resumes its plunge.

I remain of the stance that Gold and Gold stocks are going to separate from the general stock market if the bear market in general equities resumes as I am anticipating. I have received many comments that this can't happen, but I have history on my side and "it's just time" as Martin Armstrong is wont to say. It won't be forever before the big boyz turn their speculative attention to the UK and then the US since sovereign debt is now the name of the roulette wheel game. The U.S. Dollar Index, a meaningless construct since it defines value using intrinsically non-valuable paper promises that will never be repaid, is rising but Gold is also rising. The clash of the titans continues. But don't think for a minute that if the U.S Dollar turns lower it means that equities are automatically going to rocket higher. If this is true, then why have stocks been rising when the U.S. Dollar is rising? Ask Italy, Portugal, Greece and Spain if a falling Euro has helped their stock markets.

People have been and will continue to turn to Gold from here until this secular stock bear market completes. There will be lots of twists and turns along the way, but we will end up with a Dow to Gold ratio of 2 or less before the dust settles.

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