Trader’s Narrative

While most people’s attention has been focused on the equity market turmoil, something interesting has played out in the gold market that bears to be highlighted.

It is a myth that gold acts as any kind of a safehaven but what we have seen isn’t the normal, run of the mill bull market correction. This one has been caused by the dislocation in the fixed income market.

Just today, gold closed at $658, down almost $22. Since the equity market top, it has fallen from a high of $700.

I’m sure all gold bugs are asking themselves: if gold can’t rally in the face of an equity market meltdown, the US dollar in the dumps, a credit crunch which has people dumping aything risky, and which has brought out a slew of negative headlines… when will it rally? When it is all sunshine and lollipops?

This gold bull market is over. Finished. Kaput. Sayonara. Ciao.

Le Caffe O’Lait
Of course, the folks at Le Metropole will rehash the usual conspiracy theories about central banks, the gold cabal, the plunge protection team, etc.

None of that matters.

By the way, isn’t it amusing that those that vehemently believe in and argue for the existence of this powerful, pervasive conspiracy also bet against it? Wouldn’t it be more congruent to plunk down everything you own in the market?

After all, if you believe that the plunge protection team and the Fed and all the other goblins and gouls out there in the shadows will rescue the market from a meltdown, why would you invest in gold? Why not go for the ride and make hay while the sunshines?

Bounce?
In any case, ironically, right about here I think gold stocks are ripe for an oversold bounce. Nothing fancy, just a tradeable rally.

Within the Gold Bugs Index (HUI) zero gold stocks closed above their 10 day and 50 day moving average. And only 7% closed above their 200 day moving average. Wouldn’t it be hilarious if gold stocks rallied along with the stock market?