Long Gold - Short Financials Trade Unwinds

The trade that has been working since early 2007 has finally fallen apart in the past 2 weeks. Gold has fallen precipitously from $1,000 an oz to under $800 per oz. It looks like gold can fall much further perhaps as low as $500-600 an oz despite the seasonality that often benefits the gold price between September and January.

Gold Chart - Can you say TIMBER?




Financials have rallied sharply but I consider this an intermediate lull. Short trade should continue to work. The important part of the gold / financials pair that is unwinding is the "long" part. Long anything is not really working other than to play the sharp and fast bear market rallies.

The bear market across all asset classes is accelerating and the specter of deflation again hovers over everything despite the massive monetary stimulus provided by the Federal Reserve over the past five years. Why is this? Too much CREDIT has been created without enough underlying income or intrinsic asset values to support the growth of the DEBT.

New movie coming out - I.O.U.S.A. - watch it to get a feel for where we are heading. In the meantime sit back and watch the bear market ravage the stock market and real estate markets.

When we start to go hyperinflationary, there will be clear tipoffs in both the gold market and US treasury bond market. Watch both. Those are your indicators.

-BG