Monday, November 29, 2010

Gold (GLD) Versus Euros (FXE)

So I think everyone knows that I am short-term bearish or at least ambivalent about gold. Tonight, I have been thinking about gold versus euros, that is short euros (FXE) and long gold (GLD).

Here's a three year chart of the gold/euros trade. You'll notice that there has been a new breakout in the chart.

Obviously, I am not early to this party, but I think that this trade gets less attention than the dollar/euro or gold/dollar. As a contrarian I find that very attractive. Here's some evidence in support of my point. These are the number of Google search results for the indicated search phrases.

EUR/USD 5,340,000
USD/EUR 1,690,000
GBP/USD 2,230,000
NOK/USD 154,000
GBP/NOK 85,900
"gold versus euro" 11,400
"usd versus eur" 369,000

I am basically bullish on gold long-term, I just feel that too many people own it right now. It makes me uncomfortable. I like this GLD/FXE trade because I'm much more bearish on the euro than on the dollar. See my recent posts on why the euro is doomed to fail and how we know the European financial crisis is not going away.

The yield on the FXE is now almost zero, so the cost of carry on this trade is not too bad.

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