Why I'm Re-Establishing My Gold Position

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Clearly, fear of a systematic collapse in the financial markets was one factor pushing gold higher over the past few months. Now that fear is abating (at least for the moment), investors had been liquidating gold and other commodities and buying risky assets. At some point, I believe the fear trade will end, and fundamentals will reassert themselves - they may actually be reasserting themselves now.

...Which brings me to my gold position, which I re-purchased on Monday.

Last week, I stepped aside from the plunging gold market and liquidated everything I had. I changed my mind during Monday afternoon's session, and bought it back...

So why buy now? Call it intuition, a hunch, a gut feeling, or just plain stupidity.

First, I feel we may have seen the bottom in gold. Gold fell 18% from its high six weeks ago. That is a pretty good correction. The last big downdraft in 2006 saw a 25% decline in a month...

Finally, has the dollar really bottomed against the euro? It sure seems like everyone thinks so. But is everyone right?

Maybe they are, I don't know. I know I called the bottom of the dollar some time ago, only to be proven wrong. (Sell your gold! - ed.) And I still believe the dollar is in a bottoming process.

However, the gold bull market is not merely an anti-dollar trade. After all, gold has risen in all currencies over the past decade, and the secular bullish trends pushing gold higher remain intact.

Nor is it merely a fear trade, as gold has risen since the market bottomed on October 10, 2002 when it was $310 an ounce. In the 2002 - 2007 equities bull market, gold outperformed stocks. Which brings me to the action of the past few days.

Clearly, fear of a systematic collapse in the financial markets was one factor pushing gold higher over the past few months. Now that fear is abating (at least for the moment), investors had been liquidating gold and other commodities and buying risky assets. At some point, I believe the fear trade will end, and fundamentals will reassert themselves - they may actually be reasserting themselves now.

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