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ContraryInvestor: The Many Faces Of Gold

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June 01, 2010 – Comments (0)

Here is another great Market Observation by ContraryInvestor. I have linked to a couple of their articles in the past:

ContraryInvestor: INCOMING - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=385342
ContraryInvestor: Of Mountains And Molehills - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=330817
Volatility Schmalatility and ContraryInvestor: Cycle Logical Issues? - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=336084

This one is very good as it discusses gold and some not often seen gold ratios that portend a strong continuation of this gold bull market

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The Many Faces Of Gold
June 2010

by ContraryInvestor

[excerpt]

The Many Faces Of Gold...Who isn't talking about gold these days?  Maybe that's more the appropriate question than not.  Of course dial the clock back seven to ten years and serious discussions of gold set against the context of the macro credit cycle, monetary and fiscal policy, etc. were almost strictly confined to the bearish underground.  Certainly we are in the underground no more.  Well above ground and gaining more widespread recognition by the day as many of the former bearish underground rationales for accumulating and holding gold are now coming true right before our eyes and clearly entering mainstream debate, if not conviction.  It's time for a quick little review, but what we hope to accomplish in this discussion is twofold.  We want to have what we believe is very much an unconventional look at gold that we really have not seen in this conceptual format anywhere else.  As you know, charts of gold relative to the major global currencies are a dime a dozen.  We don't want to waste your time as you can find them anywhere and everywhere across the net.  Gold is breaking out really against all global currencies.  That's not new news.  The Dow and S&P expressed in terms of gold, etc.  Pretty conventional stuff in terms of more mainstream commentary and analysis.  We're going to have a look at gold relative to what we believe are important historic economic markers of the real economy itself.  And it just so happens that this little view of life dovetails into the second purpose we have in presenting this review.  We know you've seen a number of pundits predict $2,000 gold, $3,000 gold and even perhaps a moon shot to $5,000 gold and beyond.  Yet so much of what we see with these predictions is accompanied by little to no concrete numbers based rationales as to why any of these numbers might make sense or eventually become a reality.  Well guess what?  We'll give you some numbers based reasons as to why all of these projections could indeed come true based on actual historical precedent grounded in the reality of the real economy itself.  Let's get to it with some preliminary thoughts.

First a little watch point for the three to four months coming at us dead ahead.  It just so happens that literally just a few weeks back the large commercial players had a record short in gold as per the COT data.  Either these sharp shooters will be correct and gold is setting up for a perhaps meaningful pullback, or this is rocket fuel for a short squeeze of perhaps some magnitude.  We wish we could tell you if either of these two events is coming, but no one knows with any certainty.  What we do know is that over the June through August time frame immediately before us, gold will be entering its historical calendar based period of relatively consistent seasonal price weakness.  As you can see in the chart below, after that it's back to the September through February period of meaningful seasonal price strength.  What we believe will be very important is to watch just how gold acts during the upcoming weak calendar based period.  Much like gold has been ascending as the dollar has done the same really over the last three to four months, will the price of gold move higher and essentially break ranks with past calendar based rhythm?  Stay tuned as gold will be telling us a "story" about its ongoing bull market journey over the summer of this year.

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