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Keith sold our long position in GLD in the Hedgeye Virtual Portfolio this morning.  He noted, “Gold is snapping my intermediate-term TREND line again on a consequential USD Index breakout > TREND support. The Risk Management Process says take the loss here.”

The USD is breaking out above our TREND line of support, $79.03 on the USD index.

Selling Gold on USD Breakout - 1

The inverse correlation between the USD and gold has strengthened to -0.75 on the 15d duration and to -0.78 on the 90d duration.

Selling Gold on USD Breakout - 2

Selling Gold on USD Breakout - 3

With gold flirting with its own TREND line of support, $1693, the proper risk management decision is to sell the position.  While gold is stronger today after ISDA triggered the CDS insuring Greek debt, we think that the strength is transient and that the USD correlation will be the primary factor driving the price of gold on the go-forward.

Selling Gold on USD Breakout - 4

Lastly, sentiment is increasingly becoming a headwind.  Bloomberg reported earlier today that, “Gold traders are the most bullish in four months after investors accumulated more metal than ever and hedge funds raised bets on gains to a five-month high.  Sixteen of 23 analysts surveyed by Bloomberg expect prices to gain next week and one was neutral, the highest proportion since Nov. 11. Investors increased their holdings in exchange- traded products backed by bullion for seven consecutive weeks and now hold 2,407 metric tons valued at $131 billion, data compiled by Bloomberg show.”

Kevin Kaiser

Analyst