So...What's Next for Gold, Bonds and the Dollar?

GOLD

I have been more wrong about Gold than any market that I can remember in a long time. Although we missed a wonderful trading opportunity, the stop at $123.50 after shorting (NYSE: GLD) at $120.50, limited the damage. It is one thing to be wrong, but it is another thing to stay wrong. GLD closed at $133.68 on October 15. I would not buy Gold here, but I wouldn't try shorting it, even though sentiment is extraordinarily bullish. My guess is that the stock market and gold will probably top about the same time. Although much of the Fed‟s next round of QE has already been prices into all the markets, the next meeting isn‟t until November 3. This should allow the markets the opportunity to hold up and probably make further price progress.

DOLLAR

Sentiment toward the Dollar is uniformly bearish, since everyone KNOWS that the dollar can only go down, with QE2 on the way. As noted, markets are always wrong at important turning points in part because everyone has already acted upon what everyone knows. This suggests that a huge short position has built up in the Dollar, in anticipation of a further decline. One of the surprises in 2011 will be how much the Dollar rallies, and gold declines. Until technical indicators show more weakness in Gold and strength in the Dollar, patience is called for.

BONDS

If I'm right about the coming economic weakness in 2011, Treasury yields should spend more time shopping sideways. In the short run, they may sell off a bit, due to the faith investors have in QE2 working.