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In The Time of Chimpanses, I am a Monkey

Gold

A couple weeks ago, I wrote a blog post that described why I was posting profits in our gold and commodity positions, selling 20% to 30% of our holdings. Clearly I was the monkey running the other way against the pack of chimps driving the price of gold ahead of its short-term fundamentals.

I’ve circled a couple of other times in the past couple of years when gold got similarly extended, running up along the top band at two standard deviations of price beyond the moving average. From a statistical standpoint, that just does not continue forever. As we’ve seen though, it can continue for awhile as investors get giddy chasing the price higher.

Something always happens to throw water on the party and bring the price down to two standard deviations below the moving average. I think it will be the prospect of the end of the Fed’s policy of purchasing treasuries to fund our budget deficit. They’ve announced that June 30th will be the end, and sometime soon, I think the market will react and drive up the price of the dollar as it believes interest rates on treasuries will have to rise to attract another buyer.

A rising dollar will be the proximate cause of a short-term correction in the price of gold, and to me it looks like the blue line at $1400 per ounce seems like a likely place for it to correct toward.

So, for now, I am happy to have booked profits on the part of our positions that we did, and we will wait to see what happens next. If we get up toward my 2011 target of $1650 per ounce, I’ll probably sell even more.


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Mark