Gold continues to show weakness, a combined effect of a slight strengthening of the dollar in four of the five sessions of this week's trading. But something else seems to be going on here even more telling and more interesting if you have gold in your portfolio or are considering adding it:
The trade just looks tired and crowded.
What do I mean by this? Well, when I was trading in the oil pits, sometimes we'd look around at the other traders surrounding us and realize that we all had pretty much the same opinion of the market and the same position.
That would be a dangerous moment, because unless we found some fresh money to come in and share our opinion with us, we'd all be looking to liquidate at the same time, "climbing" over each other and competing against each other. The feeling is like being in a soon-to-be sinking ship with only one porthole in the wall -- sooner or later, there would be an incredible scramble to jump through that porthole but not a lot of free space. Last guy out loses.
That's a crowded trade.
Crowded trades can occur with tens of thousands of traders in a larger market too, if they share the same opinions at one time. A little of that seems to be affecting the gold market in the last week. Even talk of a small slackening of inflation has eased buying in the gold market and allowed it to slip quite a bit, from last Friday's close in the
SPDR Gold Shares
of $93.71. It's at $92.40 at 3 p.m. Friday.
But the inflation thesis still dominates my view on gold, and every time the trade takes a breath because of temporary dollar strength or just plain tiredness, I'm inclined to wade in for a few more.
Take the opportunity then with this downturn to slowly add to your gold position, or even start to accumulate a little.
Everyone should have a little gold as an inflation hedge, in my view, along with TIPS (Treasury Inflation-Protected Securities) with the monetary environment were in.
Oil continues to succumb to the "endless bid," which I have been writing about and appearing on in videos here on
I'll continue to talk about this in my regular column on Tuesdays, but for trading and portfolio positioning, I believe that oil is operating on the "greater fool" theory and not worthy of investment here, if you don't already have it. That doesn't mean, of course, that it can't move higher. The strength of the endless bid is enormous. But I'd much rather talk about commodities with relation to value as opposed to trying to fathom investor appetites -- a much more difficult game, as if trading weren't difficult enough.
Instead, concentrate on natural gas and stocks related to natural gas.
It is impossible in the long term for oil to continue to maintain its $70-plus-a-barrel price and continue to see natural gas languish at $4 an mmBTU. Although it's surprised everyone and done an excellent job of that so far this year! Crude oil settled down 64 cents to $72.04 on Friday.
Still, that's the opportunity at hand -- not overpriced crude, but relatively
Check out my other videos and columns for natural gas ideas for the coming weeks.
At the time of publication, Dicker was long GLD.
Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser. Dan's recognized energy market expertise includes active trading in crude oil, natural gas, unleaded gasoline and heating oil futures contracts; fundamental analysis including supply and demand statistics (DOE, EIA), CFTC trade reportage, volume and open interest; technical analysis including trend analysis, stochastics, Bollinger Bands, Elliot Wave theory, bar and tick charting and Japanese candlesticks; and trading expertise in outright, intermarket and intramarket spreads and cracks.
Dan also designed and supervised the introduction of the new Nymex PJM electricity futures contract, launched in April 2003, which cleared more than 600,000 contracts last year alone. Its launch has been the basis of Nymex's resurgence in the clearing of power market contracts over the last three years.
Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts as an analyst of the oil markets on CNBC, Bloomberg US and UK and CNNfn. Dan is the author of many energy articles published in Nymex and other trade journals.
Dan obtained a bachelor of arts degree from the State University of New York at Stony Brook in 1982.