This post was just published on ZYX Short Sell Change Alert
Consider taking partial profits in gold right here at $1538 in June futures or $149.51 in GLD.
This will leave only 5% of full position size short.
What has changed since the last post this morning is the report that Europe may be getting closer to separating out supporting banks from the sovereign debt and deficit issues. Such reports have not received much attention in the market so far. If market catches hold of these reports and investors start understanding what it means, we can see a massive rally in stock markets and massive selling in Treasury bonds and German bunds.
In theory, this should be good news and gold and silver should go down on good news because gold and silver are traditionally a hedge against bad news. However, as we have been writing, gold and silver are under the control of the momo crowd which buys on good news. On good news from Europe, we may see a massive rally in gold to $1700 and in silver to $34.
One reason that we have developed a deep understanding of what such a move in Europe would mean is because we got early wind of this potential about two weeks ago. This has given us enough time to understand the implication if such an event comes to pass. This is the reason that we have not been aggressive in selling gold and silver but have been in the mode of taking profits on the short positions. The same logic applies to stock positions.
Please understand that nothing is cast in stone. The situation is very fluid. There is a lot of new continuous information flow. In such an environment, it is best to be nimble, be on defensive, and not get set in one point of view.
Our long-term models still continue to show fair value of gold in the range of $1250 to $1400. There is a real possibility of $1250 to $1400 getting hit if a rally does not materialize soon. This again emphasizes the need to keep position sizes small and be very nimble.
