Key News

• Confidence in the world economy held at a record high in September. (Bloomberg)
• Unemployment in the industrialized world will hit its highest level since World War II next year. (AP)

Quotable

“It's only hubris if I fail,"

                             Julius Caesar

FX Trading - Ode to the Outlaw Goldbug
My father in-law, the family gold bug, makes sure I know that gold is going up, in case I haven't noticed. He's loaded to the gunnels with gold and silver (no bomb shelter yet that I know of). He, being the type that once literally hid buckets of silver coins in his walls, is loving life with the move higher in gold and silver prices. He should. He was right. I was wrong. I kept telling him that so many TV commercials about gold must indicate there is a major top shaping up; it must. But onward gold marches. Every $10 higher it goes and my father-in-law seems to forget he mentioned to me it was going higher $10 ago. I guess that's why they call them outlaws.

Oh well, I owe him that pleasure at least, especially given he allowed me to marry his wonderful daughter 29 years ago; yes, that was just about the time those buckets of silver in his walls soared to $50 per ounce thanks to the Hunt brothers cornering of the silver market—near and dear, as we all lived in Dallas at the time. Of course the New York Metals Exchange (in their infinite self-interest and interest of their always self-interested Northeast banking “elite” friends decided to change the rules on the Hunt brothers in the middle of the game). It ended badly for the Hunts, silver, and those buckets in my father-in-law’s walls. Payback is a bi*&^ as they say.

So here we sit, gold looking very good. And many now believe on the way to $1,500, $2,000, and beyond. In the world of global finance and potential for all types of unforeseen events to rear an ugly head at any moment, it seems we’ve reached a stage where almost anything can happen.

Who would have thunk the most powerful institutions in the world, at least if we believed their press clippings, could have literally disappeared overnight—a la Merrill, Lehman, Bear… Gone, the entire “investment” banking industry of the US in a blink! Of course, the Government of Goldman (morphing quickly to bank status like the chameleons they are) is still here to see us through these tough times; we bow down in thanks I am sure.

So is it outlandish to say gold goes to $2,000? Not if you consider that markets can overshoot in such huge fashion. And with gold climbing tremendously in a world of improving optimism, what happens if all things hit the fan again? $2,000 sure won’t look like an overshoot.

But a battle seems to be shaping up, with speculators very long and commercials seemingly very short. And of course also in the game is the lowly dollar, the gold mirror image.

We hate to keep falling back on intermarket correlations as an excuse for thinking, but they are still seemingly in play despite the relative normalization of interest rates among the major central banks. As you noticed in the key news above, global confidence is rising. As you may have noticed global stocks are doing the same. Oil is back over $70. Emerging markets seemingly looked right past the mini-break in Chinese stocks, which now seem to be recovering. China has made it clear they will do all it takes to keep hope alive. Analysts say their growth is accelerating. It seems we are still in the midst of some powerful self-reinforcing trends.

Marty Zweig made the saying famous, “Don’t fight the Fed. And don’t fight the tape.” Worry we can about statistics and positioning and key technical levels, but sometimes it’s best to just bury the stuff in the wall somewhere and forget about it. Yet another of the endless lessons I learn and re-learn about investing.