Risk vs. Reward and a Ramble

The general operating plan has been toward a market that can drag on into spring with a bullish bias.  But in the short-term, over bought markets can continue to correct.  I have taken profits on some overbought global positions and would like to watch for re-entry.

sector sentiment

Interestingly though, the various ‘Gold Bugs’ data compiled by Sentimentrader.com show an embattled sector that has scrunched even further to the left on the graph above and is the lone item sitting in a good risk vs. reward stance.

The implication is that the gold sector is preparing to disengage itself from the broad market, just as it was disengaged in the 2000-2003 time frame to launch its bull market.

Another implication is that bigger picture precious metals corrective activity could linger into spring (perhaps after a bounce or rally to relieve the current sentiment condition?) if indeed the sector is in the process of going contrary the broad market.  Could we get some QE’s 3 & 4 inspired economic gains and more stories about Goldilocks, low inflation and gold’s loss of luster as a disaster/inflation hedge?  You know the mainstream media; of course we could.

When you see Ben Bernanke heralded far and wide in the media as a genius and the hero who brought us back from the brink without much inflation, you’ll have the signal.  This would be the opposite condition to the one that was in play in the spring of 2011 when Pimco shorted the Long Bond (expecting ever higher inflation) and Bernanke’s head was being called for by angry, pitchfork wielding mobs of austerity.

But the facts for the short-term are that the gold sector is in a good risk vs. reward stance (both through technical proximity to important support levels and what looks like washed out sentiment) as more and more people come to believe it’s ‘bull over’.

Have patience dear Gold Bugs.  The time may be coming now, off of this sentiment crater or it may be coming for real in the spring.  Just play the game and manage risk.  The real panic could come later when the economy starts to grind down again and a Federal Reserve that jawboned us last week about its QE exit plan is forced to promote QE’s 5, 6, 7… Gold’s massive consolidation/correction is providing the inflators with the cover they would need.

The loss of confidence in monetary autocrats at such time could be awesome to watch – and be positioned for.

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