Agora Financial’s Rude Awakening

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Laguna Beach, California

• The long and the short of the gold question,
• Where the smart money’s been…and where it’s headed,
• Back when the world loved Countrywide and idolized the dollar…

Eric Fry, reporting from Laguna Beach, California…

Whenever someone asks us whether we prefer blondes or brunettes, we always
reply, “Yes.”

Some choices simply defy choosing. But if we must choose, we’d want to
possess a few extra details. Is the brunette a librarian or a motocross
rider? Did the blonde graduate from MIT? Is the brunette a librarian AND a
motocross rider? Does the blonde prefer gardening at daybreak or clubbing
until dawn? Has either the brunette or the blonde memorized the entire Rude
Awakening archive?

Each specific situation – in combination with specific motivations and
expectations – dictates the appropriate course of action. Whenever we were
dating a blonde, we preferred blondes. But when we were married to a
brunette, we certainly preferred brunettes, right? (”No honey, I never really
liked blondes”). And when we were dating that beautiful girl with auburn
hair, we did not care for either blondes or brunettes.

In the same way, whenever someone asks us whether they should buy gold or
sell it, we also always reply, “Yes.” The exact answer depends upon each
investor’s time-frame, risk-tolerance, profit objective etc. For example,
even though gold has been a great thing to buy throughout the last seven
years, it has also been, on occasion, a good thing to sell for a week or two.

So let the reader decide whether gold is a buy or a sell, and over what time
frame it might be either one. For our part, we will reiterate our oft-
repeated affinity for the barbarous relic. We liked it below $300 an ounce –
back in 2001, when the world’s investors admired the U.S dollar and idolized
Countrywide Financial. And we still like gold today at $880 an ounce, now
that the U.S. dollar attracts fewer admirers and Countrywide attracts class-
action lawsuits.

But our love is not blind, at least not entirely. We realize that gold may
repay our affection with scorn for days at a time, especially during moments
like the present when admirers are crowding all around her.

In the column below, we’ll consider the current state of the gold market from
a variety of perspectives and time-frames. To offer a preview of our
conclusions, gold is a “buy” and a “sell.”

—- Mayer’s Special Situations Resource Report —-

“The Biggest Resource Breakthrough Since the ‘Beaumont Miracle’ of 1901″

64 publicly traded companies are already deeply invested… insiders are
already raking in as much as $205,421 per day on the shares…

But only one of these cutting-edge companies offers you the “secret wealth
advantage” I reveal below…Read On.

—————————————————–

Sell Gold!…or Buy It
By Eric Fry

In 1999, gold was friendless…and “ghetto fashion” was still very “ghetto.” In
2008, gold is as popular as the iPod…and rich teenagers all over Southern
California wear oversized jeans around their ankles. When edgy trends become
too popular they aren’t so edgy anymore, and they often die a sudden death.
So all we sayin’, yo, is that maybe gold has become a bit too popular for its
own good…at least for the moment. You down?

Gold’s price has been soaring recently, and so has its popularity, especially
among the “Speculators” in gold commodity futures. According to the latest
Commitment of Traders Report from the CFTC, the Speculators – also known as
the “dumb money” – are holding a record-high, net-long position of 220,000
gold futures contracts. For perspective, that’s double the position this
group held six months ago and four times the position they held two years
ago. For additional perspective, the Speculators held their record-high, net-
short position on April 9, 1999, shortly before gold launched its dazzling
run from $280 an ounce.

If the Speculators were so very wrong in 1999, could they be so very right
today? The obvious answer would be “No.” But maybe the obvious answer is the
wrong one. Maybe the global monetary trends that animate the gold price wield
a much more powerful influence than mere speculators. Over the long-run,
certainly, the dollar-destroying policies of the Federal Reserve – combined
with the euro-destroying policies of the European Central bank, combined with
the you-name-it-destroying policies of central banks around the world – will
chase investors into the gold market. But over the short-term, the ebbs and
flows of investor sentiment can take charge.

It is worth noting, therefore, that while the Speculators are flowing into
the gold market, the “smart money” Commercial traders are ebbing. The
“Commercials” are holding their largest-ever net-short position in the gold
market. In other words, they are betting heavily against rising gold prices.
By contrast, back in 1999, the Commercials were taking the other side of the
Speculator’s big bet against gold. In April of 1999, the Commercials held
their largest-ever long position in the gold market, just before the gold
price took flight.

Net-net, the sentiment readings from the gold futures market constitute one
very clear strike against gold, at least short-term. But lest we gold bulls
be swept away on a wave of self-doubt and trepidation, let’s contemplate a
weighty consideration from our friend at the BullionVault, Adrian Ash:
“Imagine you’d been smart and put some cash into gold,” Adrian begins, “You
didn’t need to buy before the gold market took off sevens years ago. Buying
gold at the start of last month would have done just fine.

“Six weeks on, your imaginary self now shows a profit of 12% in terms of the
Dollar.

“‘Too hot, too fast,’ you say to yourself. ‘Maybe I should book my profit.
The loss of confidence in central bankers could suddenly reverse. Sentiment
in the credit markets could return like sub-prime never happened…and all the
other reasons for today’s rising gold price might evaporate with a few choice
words from, umm, well from Ben Bernanke or Hank Paulson.’

“So you choose to get out of gold. It’s time to take profits. Question: Where
will you now put your money?

“Hmmm…maybe you should switch into stocks. The S&P now struggles 15% below
its all-time high. So maybe they’re due for a bounce. How about Treasury
bonds? Sure, yields are now well below the inflation rate and the dollar’s
value is eroding rapidly. But everyone loves steady income.

“Or you could hold your wealth in real estate. Prices turn when no one
expects it, remember! And certainly no one expects Florida, California, or
even London, house prices to turn higher any time soon. Be the first one on
your block to dive into the sickly real estate market by buying a spec house
or two. No? Well okay…simply keep your gold profits in cash then. You know,
cash like the Dollar, or the Euro, or Loonies, or Pounds.

“Just decide first which currency you trust to hold its value. Go on…make
your choice…and then sell your gold.”

[Joel's Note: Not convinced Bernanke will have a change of heart and become a
responsible steward of the dollar? Don’t fancy dipping into the housing
market yet? Looking to acquire some hard metal but unsure of the price and
time at which to buy? I’d suggest considering a subscription to Outstanding
Investments. It’s a relatively inexpensive newsletter, headed up by Rude
regulars Byron King and Kevin Kerr, that deals specifically with when to get
in and out of investments just like gold. If you’re interested, you’ll find
all the information you need to get started right here.

Cheers,

Joel Bowman
Rude Awakening