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Avoiding the Gold Trap

NEW YORK ( TheStreet) -- Gold has finally cracked $1,000 an ounce. It's been what all the gold bugs have been waiting for. Is now the time to go "all in" on gold? I think there's a classic trader's trap in gold right now and I'd advise you to steer clear.

Everything is working to gold's advantage right now and every argument that can be made seems to point to it moving higher and for you to consider being long gold and gold stocks.

There is, of course, the very obvious inflation trade that draws many investors to gold.

The historic deficit spending by the federal government to try to avoid a cataclysmic, "Depression-era" replay does not come as a free lunch, the gold advocates say.

The huge stimulus package, bailouts for financial institutions like the Troubled Asset Relief Program, the Term Asset Loan Facility program, guarantees of various other commercial and residential debt instruments and even "cash for clunkers" have sent the federal deficit in 2009 to an estimated $11.8 trillion dollars. Inflation surely looms and with it, higher gold prices.

And September is historically an excellent month to be long gold. Experts note that gold has rallied in 16 of the last 20 Septembers. They cite the start of gold accumulation in the fall by commercial metals providers for Christmas jewelry, as well as the oncoming Ramadan holiday, when gold is a traditional gift.
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AUY $4.95 0.00%
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GOLD $100.50 0.00%
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NEM $34.97 0.00%


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