The Yen Is At A Crossroads

A week ago I suggested to my readers that it was time to take profits in gold at $3880. Since I issued my recommendation to exit our long position and take profits, gold has continued to rally, pushing up towards $4050 per ounce.   I have held this position for two years – since October of 2023,  when gold was trading around $1820 per ounce – so I am hardly bothered that gold is still pushing higher.  Eventually, I still believe gold has a lot of room to rally, but it is definitely stretched out and in need of a serious correction.  Once a market goes parabolic, it can carry on rallying to silly extremes, but frankly, I think that capturing a move that went well over 100% is enough. 

In fact, gold is dangerously overbought right now.  The technicals for gold right now are more overbought than silver was in 2011, when it spiked up to $49.83 per ounce before crashing to $11.64 – a 77% drop.  As I pointed out last week, silver is making a run at the all-time high, but it is also getting way overbought.  Gold, however, is even more overbought, and it is flashing red warning signs.  According to a variety of technical indicators that I watch, gold is now more overbought than the NASDAQ was in 2000.  In fact, I struggled to identify any other major markets that have posted overbought conditions more extreme than the current gold market, but I finally found one – Bitcoin in 2021.  The warning signals were flashing bright red in the spring of that year.  Several months later, Bitcoin plummeted from $68,958 all the way to $15,487  – a 77.5% drop.  Is it a coincidence that both collapses dropped by approximately the same amount? That is a discussion for a different time.  Would I consider a short position in gold through a limited-risk option strategy?  I am certainly tempted.  Am I forecasting a crash in gold?  Right now, I am simply warning you to be very, very careful.  By the way, one interesting thing to consider now that the major banks are touting gold rallying another 25% to $5,000 per ounce: Where were their forecasts when gold was trading under $2,000 per ounce?

I also suggested to my readers last week that “it is best to think of the yen’s reversal as an idea whose time may be coming. I am not fully on board the trade yet, but I am very, very interested in the idea.”  Historically, I have always been early when I play for major forex swings, so the yen’s sell-off since my last write-up is consistent with my long-term pattern of being early in forecasting big forex moves.  This is a perfect example of why I always like to scale into my position, a little bit at a time.  It is also a perfect example of why I have always liked to use limited-risk option strategies when I am playing for major forex moves.