Eery echoes of my past

Some years ago I was in the power trading business - meaning electricity, the only commodity that moves at the speed of light. Think about that. My software company created analytical models for predicting the price of electricity, and I didn’t know the first thing about any of it, when I started. 

What I learned and really the only thing I kept in life is that trading is governed by fundamentals and technicals. But I would argue that fundamentals are more, well, fundamental.

I latched onto gold a few years ago because of the falling dollar and I was living outside the US. There is an eery resemblance between what’s going on now with gold and then with electricity. Back then, there was enormous rigging of price, ridiculously complex chains of counterparties, and speculators like Enron trying to rule the markets.

Prices rarely, but often enough, spiked. That could be from $30 per megawatt-hour to $1000 in a matter of minutes. It scared the begeezus out of everyone, and that was the problem my rocket scientists were trying to solve. 

Well, we can argue that the primitive nature of modeling on Wall Street, still dominated by the incredibly simplistic Black Scholes model, is responsible for the casino markets we have today. And the OTC derivatives are just ridiculously complex chains of counterparties that will implode in highly unpredictable ways. 

Would I get my team of experts to create models to predict the price of equities and gold or anything else? No. Looking back, it was all shooting in the dark. There is no way to predict when a spike will happen. But fundamentals get you most of the way there. 

Elliot Wave analysis is the best there is in technicals, and that really helps. But in the end, you have to blend fundamentals and technicals in what is simply, gut feel. It seems ironic that after so much intellectual input, the mind just spits out an answer without much rhyme or reason, if you let it. 

Gold has been hanging around 850, the 1980 high, and finally broke upward to 900 on Friday. My gut is telling me we might get a new spike high on about 2/12 - maybe. And then fall off quickly to a low, but maybe not a new low. It may be drastic (and maybe it will count as wave 7 down of the correction, signaling the end in EW terms), as my gut is also telling me that equities will collapse and cause another concentrated de-leveraging event, but fundamentals are holding up gold, and getting stronger. We’ll see what happens when it happens.

This entry was posted on 25/01/2009 at 07:01 am and is filed under Gold. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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