Closing Gold

Gold appears to have overstayed it's welcome. Although it has had a strong run, it has overshot it's historic ratio to the USD/EUR by a substantial margin. The market is now excessively long the commodity. In addition, the potential for the IMF to sell gold positions into the market in order to fund it's budget deficit poses a serious downside risk. This, among other issues, has the potential to tip the speculative position over, as it cannot remain this extended.

Streetracks Gold Trust (GLD) recently added 8 tonnes of gold to it's holdings, and now controls close to $20bln of the commodity. This is largely held by retail investors. The volatility of this investor class and trend-following nature of their trading is concerning whenever they are so long of a single position. Although dollar weakness will most likely persist through the middle of this year, the long gold position is no longer a good method of playing this. The Gartmann letter believes gold will hit $1000 shortly. I would rather take substantial profits off the table rather than risk them for a marginal $50 gain, and look at investing in other (net creditor) currencies in order to play the dollar weakness. It is also unclear that the Euro will be able to sustain it's current positon, versus the Dollar or globally. This trade, however, deserves much more research.

Short SPX, Long CT