I am not sure if it is the fact that I see no reason to actually own a metal that serves really no purpose other than looking good around Mr. T’s neck. Or, the fact that if I own gold I know I am probably on the same side of the trade as Peter Schiff. Whatever the reason, over the last 20 years I have had a difficult time wrapping my head around the idea. I know, I know….as an investor there is a right time and place to put some gold in your portfolio, and in an inflationary period I could see the case. But, as you know, that is not the case, hasn’t been the case, and probably won’t be the case for the foreseeable future.

But one can’t deny that despite the massive rally in the USD over the last few months, that gold should have continued its decline. See chart below:

In addition to the fact that gold stopped falling, it is testing a downtrend line that has been in existence for the last couple years. Read my tweet yesterday here (quite a few comments on this chart).

And if you read here, you would know that the USD over the last couple days has rejected a key level of resistance. So, the question I am asking myself is “if the USD is to decline, pullback, or consolidate in the near term, will gold rally? And if it does, is it for any other reason that a squeeze or poor short positioning?”

If Gold decides to stage a rally from here, I am not sure I can get myself to actually buy it. However, I would like to participate “somehow” and a trader (JessieMacguire) today reminded me of a conversation we had yesterday on my daily webinar about Gold and the JPY. Take a look at the following “strong” correlation between the JPY (6J) and Gold:

Looking at this chart, one would think if gold rallies, the JPY should rally. The 6J is the JPY futures contract, that chart is the “candlestick” chart.

I can argue that this is a tough trade. You would be fighting the BOJ, Mark Cuban, Kyle Bass and every other asset manager from here to Timbuctoo. But for me, that boat (long JPY) could be a little lopsided as well. With a whiff of risk aversion or volatility due to the possibility of the FOMC raising rates sometime this year, perhaps that is the trade I go with.

Go ahead, leave your comments on “why” we all should own gold. You won’t be able to convince me. But that’s okay, I have the JPY!

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I have been long some JPY against the AUD, NZD and CHF for the last couple weeks. I am looking to add to my JPY exposure in the future.