Paulson Buys GLD, GDX. Laidi Long Gold/Oil Pair Trade

It's time to look at gold as a possible break out candidate. I'm talking about the BIG one this time. Timing might be pre-mature but the commodity still deserves a spot on your screen as it flirts with the $1,000 resistance level, a level going back about 2 years. Gold spot is at $930.

With USD dilution, central bank demand, possible green shoot/reflationary pressures and a safe haven bid less equity rally re-allocation, lets take a look.

Ashraf Laidi of CMC Markets was on Bloomberg TV last week and was bullish on the risk aversion trade (higher yen/stabilizing US Dollar/lower equities). He thinks we reached a peak in the 2 month up cycle. Laidi also touched on the gold/oil ratio. He believes gold could outperform oil in the coming weeks and gold could test and successfully break the $1,000 level. We'll see.

Oil is interesting here at $60. Watch out for the potential contango dump (1) Close to 150 million barrels oil, products stored at sea, (2) Flattening crude curve may unleash flood of U.S. oil (Reuters). If the USD continues to fall it could support crude here. I provided a Gold/Oil chart below with the 200d moving average support level. On 10/29/2008 I embedded a video w/ Ashraf Laidi featured on Tech Ticker talking about gold, USD, etc.




2 Year Gold Chart (above moving avgs) (Stockcharts.com)


Gold:Oil Ratio On 200d Moving Average (Stockcharts.com)


Paulson & Co scooped up GLD, GDX and a bunch of miners during the first quarter. At 3/31/09 Paulson & Co. owned 31.5 million shares of GLD (gold etf, 8.7% of the fund/$2.8B), 17.3 million shares of GDX (miners), 18.2 million shares of Gold Fields (GFI), 30.7 million shares of Kinross (KGC) and 2.9 million shares of AngloGold (Source: GuruFocus, 13F).

Here's another interesting factoid, the firm said in a statement that the GLD holding was a hedge against one of his funds denominated in gold Source: Bloomberg).

Also check out the CBOE Gold Volatility Index chart from curvingfutures.com. As with all other markets implied volatility is being liquidated which is bullish if it sticks. In conclusion, it's going to be a fight up to the $1,000 level and if I were to try something here I'd def be hedged w/ puts/stops. Also watch the Ivolatility, it's hitting support levels not seen since early '08 but you can't rule out a 180° turn.

Paulson's got the hot hand.... Good luck.