Anecdotally, the talk about gold is reaching fever pitch levels as well which from a contrarian point of view suggests prices should at the very least pullback soon. I've also noticed many people are providing lofty targets. I've often heard $1300 as an immediate target and $2000 as a longer term one...this should be somewhat concerning if you are a long term "gold bug".
Yesterday I heard Dennis Gartman say that he's been getting a surge in requests to do interviews to discuss gold and he's mentioned in the past that every time this happens gold has made an interim top shortly after and he believes gold should pullback to $1000. But what really caught my attention is the complacency in which he said that the pullback will be a buying opportunity and that the bull market in gold would surely continue. Another guy on Bloomberg showed similar complacency. He was saying buy any dips in gold. It's amazing how the sentiment towards gold has changed over the past 10 years. 10 years ago when gold was at $250 institutional investors wouldn't touch it with a 10 foot poll...now at $1000 it's a must have in the portfolio.
The sentiment towards gold reminds me of that seen towards oil last year at its peak. When oil was around $130 most people were saying it was overheated but after a correction to about $100 it would be a buy again because oil was on it's way to $200 eventually....we all know what happened afterwards.
I mentioned several weeks back I expected gold to break out above $1000 and 1 of 2 things would happen.
1)It would make a marginal new all time high to suck in the technical buyers before getting the rug pulled from underneath them dropping back below $1000 or
2) It would go straight to $1100.
It's too early to tell which scenario is going to be played out. Thus far, gold broke above the previous all time high of $1025 to about $1067 and has so far pulled back to $1050. It can still easily make a charge to new highs. I think there's a good chance of 1) playing out here. What I will be watching for is some sort of double top formation. It's too early to jump in short because this could just be a pullback that leads to higher highs. If I ever attempt to pick a top or bottom I always look for some sort of confirmation. If I miss the top/bottom so be it...there's still going to be plenty of "meat on the bone" to feed on as the new trend continues. A lot of people have an obsession with picking tops and bottoms right to the last tick in an attempt to get the best "value for their money". More often then not, this leads to losses as they get run over and it's probably the most popular way people lose money. As per the rule I mentioned yesterday....a stock that makes a fresh 52 week high (especially an all time high) is likely to make another one shortly after.
So, it Gold tops (and thus the dollar rallies) does this mean equities will top too given how the dollar and equities have been so strongly negatively correlated? Not necessarily because this relationship between the dollar and equities can always change and it has before in the past such as in the 1990's whereby the dollar and US equities often trended together. But in all honestly, to think that this relationship will just suddenly stop on a dime is the same as trying to pick a top or bottom so, yes, equities may be threatened if the dollar pops...at least temporarily.
Bottom line: I'm keeping a close eye on gold for a short trade. I want to see some more evidence of a top first before pulling the trigger.
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