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GOLD. PREPARE TO EXIT

Gold is on the rise but reasons to buy more of it may progressively vanish. One should always be cautious of sharp reversals with precious metals due to the concentration effect during bull runs. Whilst equity investors have tens of thousands names to choose from, all gold investors around the world have only one price to focus on. Punters easily get caught on the wrong side when early longs start cashing in. Say another 2 or 3 spikes toward 1300 and above, and it will start looking like a perfect reversal peak. Then the correction will be proportionate to the rise -historical.

The fundamental reason behind the phenomenal rise in tangible assets (equity, selective real estate and obviously metals) was no economic recovery. People concerned with the size of their bank deposits, or fearing inflation from quantitative easing, banks repleneshing their cash reserves with prop trades were the key drivers. But it is deflation -not inflation- which is now more likely on the menu and few are prepared for it.

Austerity packages are powerful recession generators. Higher taxes and spending cuts will add to consumer anxiety and social tensions. Banks deprived of prop trading and OTC deals may resort to margin hikes, interest rates may rise too since market regulators have lost control of the long end of the yield curves. The 1931 ingredients are coming together. Expect a massive recession.

Against this backdrop, the only fundamental reason to keep piling large quantities of gold would be to believe that it might regain a currency status over the medium term. Hopefully we're not there yet. Profits taken a little early never made anyone poor.

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