Wednesday, September 2, 2009

Gold and Silver - the Fear Trade is taking off

Gold and Silver are curious beasts...If we look at their behavior in the past we can see some interesting dynamics. Firstly, they tend to be stable when the markets start pulling back from a bullish run. Then, as that run accelerates to the downside for equities - people become emotional but as Gold and Silver are not rising they do not chase them. However, when the equity market recovers people have a fresh crash in their, the first few days that the market pulls back off its recovery - people trying to avoid new losses in Equities flock to the safety trade - Gold and Silver. After a time, that safety trade falls apart as pressure builds Gold and Silver need to be liquidated to raise cash.

So, my interpretation is that this is not the Inflation Trade that I was worried about (see: Issues arguing against the top of Primary Wave 2 here), but rather the fear trade. I think we are likely to see Gold, Silver rallying and the Dollar stable/consolidateive/rallying near-term if that is the case.

I will post charts any case, the Triangle for Gold looks like the best analysis pattern. If 981 breaks 1085 is a reasonable target. Daneric had a very good analysis of the gold setup on his blog...please check it
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