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Wednesday, April 1, 2009

Warning to gold bugs

If you have been reading my blog, I have been a proponent of resources. One of them gold, but recently I have been skittish, and sold excessive gold positions back in February. I stated then, and repeat, no one wants gold to hit new high levels, except speculators (crackpots?) and gold mining companies.

This situation reminds me when I started shorting sub-prime lenders in September 2006. It took 2 years for the public to understand the disaster the US and the world faced and for the stock market to reduce it's excess valuation. No one wanted the markets to collapse, including me. But the math and reality made it impossible to avoid.

For 2 years every trick was done to avoid devaluation until the tricks no longer worked. I see gold to be under the similar political pressures. All normal sanity shows gold should break out at any time. The IMF announced more talk on selling gold to help poor nations. A "side" effect (benefit?) is this may help keep gold prices in check, keeping pressure off of fiat currencies. Eventually the IMF and world governments willing to dump their gold to suppress prices will run out of resources and gold will rise significantly as it should against fiat currency printing.

The question is when will gold start to break out? Next week, next year, or 2012? Make no mistake, reality will also be reflected in gold prices. It will take patience just like it did for me back in September 2006.

I have significant positions in various baby gold miners. But those positions I can take a 30% drop without too much pain. For me its wait and see for Gold.

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