Thread by @SantiagoAuFund

Bought a lot of #gold today. Going home now because I think I might throw up.

Gold vs Commercial Short position with Daily Sentiment (DSI) indicated in red. I'm estimating real time commercial shorts are now less than 50k (green box) and maybe even lower.

1/ I have received so many DMs, emails and phone calls regarding the initial tweet about #Gold (above from Thursday) that I’m going to try and explain my thinking here. Hopefully it translates into a coherent answer.

2/ first off, this is not trading advice. Im not suggesting you should follow and implement my thinking. I don’t know you or your personal situation. If you find this interesting, great. If you don’t, that is fine as well.

3/ those who have followed me for a while know that I am a big believer in gold. I think everyone should own some if for no other reason than for insurance against the flawed design of our monetary system and the corresponding hubris of our monetary authorities.

4/ The monetary system will unequivocally reset. But This can take much longer than than many think and inevitable does not equal imminent. If the last 10 yrs hasn’t convinced you the madness can continue longer than expected there is nothing I can say to convince you now.

5/ those following me also know I think the reset will come not because the dollar will lose all value, but rather because the dollar will become incredibly strong. And that this dollar strength will break the system rather than dollar weakness.

6/ as such, I have said that while it is absolutely necessary to own Gold, I don’t necessarily think it is going to pay off right now. I don’t think I’m going to wreck my car tomorrow, but I have car insurance. Don’t think I’m going to die tomorrow, but I have life insurance.

7/ Despite the fact that the dollar is down over last 2 yrs, it has started rising in the last 4 months. And while it is not yet “strong”, the small strength it is showing is already causing numerous problems for the rest of the world.

8/ I believe when $ really does start to get strong it will act as a headwind for Gold. Once $ starts to really damage rest of world, I think $ and Gold rise together. Finally, $ will fall (either naturally or artificially) and Gold will be the last currency standing.

9/ As such, I have been saying for last 2 years that I wasn’t sure Gold was ready to start a bull market. So far that has been correct. I have also been saying $ ready to start a bull market. And as everyone is always so eager to remind me, so far that has been wrong!

10/ But I think that is changing. Dollar is on verge of breaking out. And even the dollar bears are begrudgingly starting to agree. So if Dollar is finally starting to break out, why am I buying gold now?

11/ First, Ive owned gold for a long time. So despite the fact that I’ve been short term “bearish”, like all my friends in the gold world I still feel the pain when it falls. The diff between us is I expect the pain & many of them dont as they think we’re headed to $5k tomorrow.

12/ But despite the fact that I’m still not convinced the final bottom is in, and $ is about to break out, there will be bear market rallies along the way. And the current set up for Gold shown in this chart here is about as bullish a set up as we have had in the last 6 years.

13/ So, does this current bullish set up mean we are guaranteed a rally from here at 1214? No!
Can we go lower? Yes!
If you don’t think Gold can be at either 1,400 or 1,000 by the end of the year, you haven’t been paying attention.

14/ the reason i decided to make (for now) a trade in Gold is bc sentiment is so low & Thursday afternoon felt to me like a crescendo of this pessimism. & every other time we have been at this level of sentiment and commercial short covering in last 6 yrs it led to a huge rally.

15/ to be honest, bc of my belief in dollar breaking out, this was a difficult trade for me. I really did feel like puking. And I still don’t feel great about it. Bc it will not shock me one bit if Gold falls further from here. Why?

16/ BC the easiest time to knock someone out is when they are already weak, dizzy and hanging on the ropes. And that is a good way to describe Gold at the moment. To think otherwise is foolish.

17/ I’ve said for a long time (just ask my friend @DGEORGESTL ) that when the final Gold bottom is in, the specs will be net short & the commercials will be net long. That has never happened before. We are very close to that happening now.

18/ But for that to happen I think we need to go lower in price. And I think that’s unlikely right now. I think what’s more likely is that we get a relief rally. Maybe for a few weeks or a few months. Get a short squeeze, draw spec longs back in and rebuild sentiment.

19/ then the commercials can use those new spec longs and rising sentiment as the fuel to make another run at driving down price and getting net long. And a few months from now (q4?) that may coincide with a dollar breakout.

20/ bottom line, I don’t know if we are at a bottom on “price”, but I feel strongly we are near a bottom on “time”. Sentiment & Commercial shorts very rarely stay this low for very long. So whether we rally now, or in a month, a big rally is very close from a time perspective.

21/ I am prepared for lower prices. And if we go much lower from here, it will likely be the easiest long trade on Gold that I have ever seen. But in my experience, markets are almost never easy.

22/ So I didn’t wait for the easy trade. I made the hard trade. We’ll know soon enough if it was the right trade.

23/ if and when we do get a rally, at that time we can discuss whether or not we have put the Gold bear market behind us for good or not.

24/ ok...that’s it for me. I’m outta here. Have a great weekend.