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Thursday, December 11, 2008

Gold, Oil, and Commodities

During a deflationary collapse the general gist is you can buy more for a buck. Prices all around you fall, as goods and services chase scarce dollars.

That is one explanation for Oil's drop from 140 a barrel to 40 in such a short period of time.
However, as my friend Happy John tells me, NOTHING moves in a straight line.
And recently, oil has pretty much moved in a straight line down. USO (etf representing price of oil) and DXO (double long oil ETF) both were bought in huge volume today.

I made a large purchase of DXO on Friday at $2.58, in anticipation of an oil bounce. The green circle shows large number of USO shares being purchased today, it seems like "big money" agrees with this sentiment now.

For DXO, if you can get it for under 3 bucks, sell 1/2 when it hits 6 bucks to cover expenses and let the rest ride. I'm less bullish on OIL, except for a counter rally play versus gold.

I have quite a bit of gold miners (etf GDX) on the long side. My original strong buy sentiment was for GDX was on 10/22/08 when GDX was between $16 and $19 dollars, Again on 10/26/08, then another strong recommendation on 11/20/08 at about the same price. Today GDX hit $28, about 3 weeks later for 55% profit. Not bad at all.
If you bought it, may want to sell, just a little, but overall I'm still a bull on GDX.
Read Mish's Blog article on Gold and Gary of Smart Money for a more complete view on why Gold is bullish in a deflationary collapse.

As for other commodities, I'm not playing, rather stick to basics, Gold/Oil.

All of this sentiment could change on a dime with significant news, but as of now, that's my view.
I would expect a DOW/S&P pullback Thursday and possibly Friday. If both days rally, I may start to sell some of my long positions in anticipation of a pullback. Resources could continue to be bullish independent of the stock market direction.

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