The air pocket today in the metals is not caused by news or fundamentals. It is totally technical. Any time an issue goes parabolic it is only a matter of time till it falls over on its side. We have six significant gaps here, the last being an exhaustion gap creating an island reversal.
Several days ago we commented that taking the low of a new high day and setting the stop 2% under the low was a reasonable way to manage the issue. In fact this procedure would have preserved significant profits. But in these wild blow off markets there is no cook book procedure, although some technical analysts might preen and brag of catching the top. Of course they neglect to mention the other tops they bungled or booted around. There is no –repeat, no — method which manages these situations with 100% (or even 75%) accuracy. And after that it’s random. Sometimes you’re lucky, sometimes you’re not.
Readers of this letter should have been very lucky with gold to this point, even giving back a chunk of (pound of, as Shylock would say) flesh.
Now there is no cookbook for what is happening at this moment. We have an island reversal with a monster power bar down. So we hedged most of our holdings today. Sometimes gold will wreak its downwave and damage in one day. Often it takes longer. We don’t tell our readers to hedge or sell. As we remarked the wave low Basing Point is in Dubai and it should take a while to get there, and investors who raise an eyebrow in shocked amusement at the gold speculators and maintain their long term positions will probably beat all of us hedgers and traders in the long run.
Now let us make a point. If you had been watching the gold market in real time you could have saved yourself $20 or $30 (basis futures) by seeing the opening down gap. And you’d probably have no fingernails, and much dyspepsia. As it is in the ETFs it only took $5 or so from us. And—-
We’ll be back buying heavier than ever on the next wave.