Friday, February 20, 2009
Rebalancing The Twins - Update (Oil & Gold)
Well, the psychological $1,000 for gold has been struck. Time to reassess the situation. Still not time to sell as I mentioned that being long gold is absolutely necessary if you are going to play some shares in current times.
The sad part was that I got out of oil futures short position too soon and did not short them again. Fair enough, cannot win everything, but I have been looking to go long on oil futures for the last few weeks and am now comfortable with the level. Hence gold position stays the same, rollover as usual.
Double long new position now:
NYMEX miNY Light Sweet Crude Oil April 2009 $38.575
Initial long gold position $802
Went double long at $900.6
Average long position: $851.3
Justification: Going long on gold is one of the safest plays for as long as I have argued since August last year because there are those doomsday scenarios playing out, whereby all assets are worthless, hence gold. I don't subscribe fully to that theory but it makes gold move up for those who buy on that premise. My stronger conviction is the amount of money being printed that is not backed by anything, particularly in the US and Europe. Technically they can absorb back the liquidity when things fare better but that is not going to happen the moment we see recovery. The slump is so bad that it is likely that all central banks and governments will keep ample liquidity in the financial systems for as long as they can - long reflationary play and a long way for players to get out profitably before we bump into the next reflationary bubble. Those on the deflationary camp might as well put more money to Madoff funds.
As for oil, I wished I had ridden it down all the way but it was too volatile for my liking. I like crude oil futures very much, one the current price is below production cost in general, thus OPEC cuts and lower investments into new oilfields. Decimation of demand is overblown if you look at consumption per day figures from IEA in December and January. If you look at crude oil futures 6 -9 months down the road, its more than $55-$60, that may be speculation or hedging, but it also points to where the trend is headed. Oil prices will rise, not so much on pure demand recovery but more on a reflationary play.
p/s photos: Lee Hyori