Now here's a thing!

Gold moves the opposite way to the market much of the time

I have been troubled by how best to manage my precious metals. The received wisdom is that when the markets go up gold goes down and visa versa. Look at the main chart (right click and choose open in a new window for best effect) and you will see that this is what usually happens. The yellow line is gold, the green is the Dow Jones. I have pointed to the big periods where this inverse relationship is obvious.

But now look at the side graph which starts at the end of September. Mostly gold has followed the market. I have explained before that I think the reason is that the market is being run by mad bankers flush with cheap cash doled out by desperate governments in Quantitative Easing programs. But the reason behind these unusual patterns is not important. The big question is: How long will this last? And will it end in a big bang.

but recently it has followed the market

These questions are relevant to solving the problem of how to trade. I think that I have to go with the flow. At present I have to dump gold when the market goes down and buy it when it goes up. But I also have to be vigilant because this relationship (which we have seen is both new and unusual) could end abruptly - especially if the economic world suffers a body blow. In those circumstances it will be important to jump back on the gold wagon very fast - no hanging about. I will keep more than a token presence because the danger of a calamity is real. The situation for silver is messier and I will look at it tomorrow.

We seem to be going back into the channel

In the mean time the wait to see where the market is headed looks like being over. The first big down tick in the Dow Jones happened yesterday. On time too, third day after touching resistance. I must not count chickens... and I must remember that there's an intermediate support level at about 11700. The other encouraging factor was the way the market moved yesterday a steady fall through the day, a late afternoon rally to trap the bulls, and then a sharp fall. And all this on average volume.

So I have rejigged my portfolio as follows: precious metals 12%, commodity 5%, equity2%, shorts 22% cash 59%. It may not be too late to up the short positions even further.