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Wednesday, November 9, 2011

Where is the bull market?

The US stock market has been fairly resilient during the European debt crisis.  The US dollar has risen during this crisis and held it's gains.

But so far, the US stock market has not clearly entered into a bull market, and has been trading in a range.
But there has been one area that has been resilient, price of gold, price of gas at the pump, and the price of food.  The common thread of course is natural resources.  Granted, all have come off their highs, but their prices have not collapsed.  Sure, copper collapsed, and so did corn, but those bubbles are reflections of how strong the overall commodity market is.

I am cautiously optimistic that during the European drama, that gold maintains relative strength.  This is a stark contrast to 2008, when oil hit a high and started to collapse, the entire commodity market swooned AHEAD of the market collapse.

To be clear, gold is not money, and there are no guarantees of it doing well in a Euro collapse, if that transpires.  But in 2008 people looking for safety ran to USD and euro.  Then when US decided to openly devalue it's currency, some  ran to the Euro, driving it up significantly against the USD.

If the Euro does enter a crisis, people that got burned may not be so quick to run back to the USD, but instead into gold.   And I am also following Gary of the Smart Money tracker into Gold Miners (ETF's GDX and GDXJ).

The hope being that money MUST flow somewhere in a crisis.   With the US Dollar not clearly going to soar for years to come, and no one trusting China's currency there isn't many options.

Japanese Yen and USD will continue to do well I believe in the short term.  Many people will flow into them, as they have done for 30 years, when looking for saftey.   But the key is to look at what happens once all the people run from Euro and other currencies into USD and Yen?

Maybe, if we have a global currency collapse.  But I doubt that.  It is more likely when the dust settles in the Euro, the USD will have seen it's final rally, as there are no buyers left.  Similar to what happened in the US stock market in 2009.  But the time the S and P 500 hit 666, there where no more sellers left, only one way left is up.

By the time the USD hits the high at the Euro crisis, whenever that is (next week, next year?), there will be no more surge of buyers.  Then there is only one way, down.

With gold I want a foothold BEFORE the USD hits a high, to be positioned for the finale.
Good luck.

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