Meanwhile, back at the office, Flash and I are discussing life and markets. Flash has been on and off the payroll for years. Strategically, I employ him as a sometimes/sometimes-not consultant. I remember when I knew he and I would work together. We had met through some money dealers in Asia, and he was describing some of his best trades.

“You’ve had a lot of great trades. How did you prime for so many good ones?” I asked.

“By being able to stomach the bad ones,” he smirked.

Ever since then, Flash and I have collaborated. If you’d like to communicate with him directly, try him at flash at mrvolatility dot com.

Positioning

My year end positioning remains the same. The trend in gold and silver remains up, and I am still looking for new highs into year end. In this instance, I am not the market. Be that as it may, I can control my entries and exits. I continue to monitor world events. Like any other trade, the most important thing is the exit plan. Don’t let winners turn into losers.

Private Eye

Due to the media’s obsession with sports icons at the moment, I feel it appropriate to update my readership connection on my relationship with Pinky Megiston. Here is the deal: our relationship continues to be appropriately inappropriate. I will explain. Pinky is my client in that she pays me a retainer for private investigation services. We are also romantically linked. I know you are thinking that this dual intimacy is highly unbecoming, as in most circles it is unacceptable to date your client. But in this instance, the faux pas is forgivable—if not favorable. The logic: everything has been disclosed online.

Words

It’s been a while since I’ve written. Special Ops assignments require intermittent withdrawal from the world wide connection. It’s great to be back, however, and I would like to I’ll leave you, the faithful, with some relevant words (the ones blaring in my ears as I write in fact). No one lays it down like the mighty Mos Def:

“You know you can’t stop my go
You can’t stop my go
Born to be who I am
(Been born to be who I am)
Bright light from a distant star
(Bright light from a distant star)
Miracles, answered prayers
(Miracles, answered prayers)
Huh, all in together now
You can’t stop my go
I’ve been born to be where I am
A bright light from a distant star
Miracles and answered prayers
You can’t stop my go
I’ve been born to be where I am
Mos light from a distant star
Miracles and answered praaaaaayers…”

And the beat goes on.

Obviously, I am in Dubai.

Despite a significant widening in sovereign default swaps last week, the dollar remains in a downtrend, gold in an uptrend. Therefore, nothing has changed my year end positioning. I remain bullish on gold, silver, and select stocks.

I do not think that anything that is happening in Dubai will be the catalyst for a sudden spike higher in the dollar. If anything, it will cause a move back into the Yen (¥JPY) as the carry currency, as it is least likely we see a systemic devaluation in Japan.

Even better, it will increase demand for the ultimate flight to safety–gold. The move in gold is in it’s infancy. It must go higher. It can’t not.

And the beat goes on.

US Dollar / Gold

Meanwhile, back at the factory, quite a few of you out there–that’s you my readership connection–have made it a point to let me know that many voices of the market are bearish on gold, including Robert Prechter of Elliott Wave Principle fame.

I’ve never met Robert personally, though I do remember when he won the US Trading championship in ‘84. I am unsure if he trades actively now. No matter–the point is that he and I have opposite opinions. He thinks precious metals are going to trade at lower prices and I think they are going to trade at much higher prices. Now that the opinions are out on the table, I am happy to report that my bankroll continues to be where my mouth is.

The precious metals–gold and silver–must go higher. They can’t not.

And the beat goes on.

Silver - Daily

In the modern world, silver bullion has the ISO currency code XAG. The name of the United Kingdom monetary unit “pound” (£) reflects the fact that it originally represented the value of one troy pound of sterling silver. In the 1800s, many nations, such as the United States and Great Britain, switched from silver to a gold standard of monetary value, then in the 20th century to fiat currency. -Wikipedia

Risk on trade is on.
Stocks up, dollar down, gold up.
Next year comes the storm.

S&P/Gold/Greenback

Back in September, I outlined how the S&P is gunned higher by buying the Euro Yen (EURJPY) spread against the US dollar.

The chart below shows the spread on the daily timeframe. This spread, along with many other inter-market relationships, are shaping my outlook into year end: The S&P and precious metals will be extremely strong and the weakness in the US dollar will continue.

EURJPY

My posture on the dollar was bullish. I thought we were due for a spike that would catch traders off guard, causing the risk off trade–S&P weakness. However, as chronicled here, a phone call from Japan changed my market outlook. I was alerted that sovereign default swaps had widened, signaling dollar weakness to come.

With the S&P and the metals gunned into year end with dollar weakness, we can take advantage of the upside to build energy for the sell-off of 2010. The crash of 2009 has officially been postponed. The downside in equities will be fierce when the dollar does catch a bid. At some point it will. Just when it is least expected. Like life, trading comes down to the most important x factor of all: timing.

And the beat goes on.