Gold - Big Picture

;} catch(e) {}" href="http://3.bp.blogspot.com/_Re9-fle5IRM/SL1Gl-gkZVI/AAAAAAAACW4/H7LWgV0afxc/s1600-h/goldweekly.png">I am currently leaning toward a fairly strong rebound in oil so therefore I am still looking for same in gold. As you know, I do not care for this situation because the plays in the oil and commodities markets do not have anything to do with the play in the gold market, at least as far as my purest big picture view is concerned. Commodities must be broken before gold's next leg up and the purest view on gold is based on economic contraction and the pressure it puts on policy makers to inflate. The contraction also conveniently takes down all kinds of asset classes (like oil) giving them the all clear to do so.

So, in some ways I will be pleased to get a final plunge over with in the precious metals. Noted commodity bull gurus are watching this long term moving average or that, proclaiming that the gold bull is still alive but if it violates this level or that it will be kaput. With current over sold levels beyond anything the bull has seen yet the stage is set for a further decline. Folks, the momo is going in that direction. Is that not what a deflation scare is? SCARY? I have read some research talking about gold finding support here in the low 800's and not likely to hit the previous target in the low 700's. I would not be so hasty on that and in fact gold has got downside to 650, which would prove deflationists EWI to be right.

If this is an A-B-C correction, gold will plunge from historically over sold to a buying op level of huge proportions. It will not be easy to buy the sector however - and most people won't because the din about deflation will be so loud and so negatively reinforcing. We will come to believe that deflation is here just as we came to believe oil was going to keep rising.

If this is an A-B-C correction it will actually be better for the big picture health of the bull market (no, I will not be among those giving up the ship) than if we rebound strongly here with oil and commodities. In my view at least, that stuff is not nearly done with its decline and as you hear me drone on and on about, the longer the correlation persists, the longer the wait is likely to be through this correction (cyclical bear market?). So in conclusion, A-B-C would be very painful and very scary here, but at least we would be getting on with it as opposed to fooling around with the commodity bull complex into the teeth of a deflationary impulse on the immediate horizon.