At the beginning of 2012 gold bulls had a straight forward thesis: Central banks around the world will continue to debase their currencies. The virtually unfettered money printing with no set ending would, the thinking went, result in rampant inflation and in so doing drive investors into gold.
Jeff Kilburg, founder and CEO of KKM Financial, is among those with a bullish gold thesis. In November he came on Breakout suggesting investors get long the SPDR Gold Trust (GLD) in anticipation of the FOMC's balance sheet expansion. He got the expansion, but the GLD yawned.
"It's a head scratcher," Kilburg says of gold's lack of reaction, in the attached video. He believes gold's lack of zest is yet another unintended consequence of the fiscal cliff. The focus on the nation's fiscal nightmares has traders fixated on the cliff rather than the currency debasement.
The Fed is fighting deflation. Inflation is something they can control, but no credible economist has yet to find a solution for no one buying goods no matter how low prices fall. That may or may not be the right play for now, but Kilburg says when inflation comes it's going to come in a fast and furious manner, driving gold well above $2,000.
If Kilburg can't hold the $1,670 area, where the price is sitting this morning, he'll start trimming positions. Commodity traders aren't dip buyers below support levels. For those with a more trading mindset he suggests hedging bets with some puts underneath, limiting losses while waiting for gold to regain its luster.