Is Gold The Oil Trade Of 2008?

With over 9,000 hedge funds out there, there is the very real propensity for traders to behave like cattle, in other words, to herd. We saw this with oil in 2008. There is plenty of oil out there, a significant percentage of it sitting in tankers moored off Singapore, which is why the price is in the 80s rather than the 30s. Fundamentals never supported the 140s. It had simply caught the imagination of several thousand highly-levered trade desks.

I am a long-term gold bull, which I feel is supported by fundamentals. But I sincerely feel it's not quite ready for prime time. The central argument for gold is a little too win-win for me. It shines in inflation. It shines in deflation. That's a little too simplistic. While it's the most important asset on the planet, it's not yet the medium for exchange. When contraction occurs, it gets sold just fast as anything else to raise cash. Review 2008 very carefully.

I do not feel that debt deleveraging has run its course. I feel there will be further contraction at some point. And like oil, I feel that gold has simply caught the imagination of several thousand highly-levered trade desks.

Last night, I heard that the latest COT Report showed the largest short position on the USD ever. I feel we are very near a flash point, and that is a lot of fuel.