Gold is breaking below long term support in early trading, continuing to erode the bedrock of the idea that the yellow metal is a way to hedge against the vicissitudes of capital markets. When stocks rise, as they have all year, gold moves lower. Unfortunately for gold bugs the reverse hasn't been true of late. When stocks have been weak, gold has failed right along with it.
Jon Najarian, co-founder of OptionMonster.com, says gold's weakness is part of a growing body of evidence that the yellow metal isn't necessarily the alternative currency of choice. "Bitcoin is a sign and a symptom of what's wrong, but unfortunately gold is not the cure," he says in the attached video. "Gold is not the beneficiary of all that fear."
In other words, gold is just another slip of paper being bought and sold on the whims and urges of the crowds. Of course that doesn't mean gold can't be traded, just that it's time to consider it from a trading perspective rather than a storage place of wealth.
As a trader Najarian is playing gold on the long side by selling puts on downdrafts, such as the one being seen in early trading Friday. He's using $1,470 strikes. That means Najarian could be forced to buy gold lower, forcing him to "own that asset at the worst possible time."
If gold breaks current levels and can't hold $1,470, it's got a long way to fall as far as the Option Monster is concerned. He doesn't see additional support until $1,340 and isn't going to hang around until it gets there if the first line of support doesn't hold.
As always, such price targets will be irrelevant if and when the global currency system collapses and the yellow metal finally becomes the only real currency in the world. Should that be the case, gold will presumably move much higher.
For more from Najarian, check out details of The Street Monster investment conference coming this June.