Why I'm Long both Gold and Treasuries

Seems backward right? Gold is inflation, treasuries are deflation. Everyone loves gold, and everyone hates treasuries. I put these trades on for independent reasons, that I'll talk about later, but first some reasons why these trades are not contradictory to one another:

1 - Long gold is not just inflation and short dollar. Like I said before, if you flip a dollar chart upside down (so both gold and the dollar should move in the same direction), you'll see that gold has been outperforming by a large margin. Gold reserves at central banks are very low by historical standards and I think that will be changing.

2 - I think that rates can stay low for longer than many think. But as rates stay low I think that gold can stay firm because people always have an eye towards future inflation.

3 - Their correlation changes. Sometimes its negative, sometimes positive, sometimes none at all. If you had bought both gold and the TLT (20-30 year treasury ETF) in 2007 you would have made money in both. From September to November of 2009 gold rallied while TLT fell. But while gold hit all time highs, TLT didn't even make a yearly low. From November - December of 2008 both gold and and TLT rallied together (gold put in a major low, TLT rallied huge due to Fed announcing quantitative easing). I actually measured their statistical correlation once a while back. I wish I could remember the number, but I do remember being surprised at how low the correlation actually was.

Reasons for individual trades:

Gold

1 - Gold may be in bubble and crash spectacularly. Or maybe Peter Schiff is right and we'll see $5,000 and ounce. I really don't know either. I think there are good fundamental reasons to be long gold, but pretty much everyone knows them. GoldLine commercials are all over the place, and even my aunt was telling about in investment "something having to do with gold, and has guaranteed 15% returns." Right.... But for now the trend is clearly up, and I think if it is in a bubble we need to have a parabolic blow off top. I'd like to ride that. Would I buy gold, put it in my IRA and forget about it. Hell no!!! But given good risk-reward entry I'll hop on board for sure

2 - The chart is picture perfect. Huge breakout from a bullish head and shoulders, now consolidating in a flag on weekly. I bought GLD the initial head and shoulders breakdown, sold some around $116, then gave a ton back before selling the rest and waiting for another entry. I re-entered about $109 when GLD broke the intermediate downtrend line. I'll take profits along the way, and trail a stop (not necessarily a hard stop though), because don't trust something when CNBC is playing GoldLine commercials

3 - Head and shoulders projects to roughly $1300 an ounce. $1500 is possible simply because round number often act like magnets. I think longer term $2,000 is possible for same reason - psychologically people think in round numbers - we broke through $1000 so next stop is $2000, right? I'm not predicting $2,000 gold, just saying it's not unrealistic. I'll try to hold a small piece with a trailing stop to see if it makes it there. $2000 (roughly) is also the inflation adjusted all time high for gold. I don't think that's really all that valid, since CPI is subjective and some of the inputs have changed over the years (not many laptops in the 70's). But the psychology of the masses doesn't care about what is technically or fundamentally valid or not. It's an easy calculation and a nice round number.

3 - Good risk-reward. Make 3 times my initial risk should be fairly easy (defined by my stop level). If it really takes off I might make 5 times or more.

TLT (actually, short TBT, the inverse ETF, but stops and profit points are based on the TLT)

1 - TLT holding its 200 week moving average. $TYX (30 year treasury yield) is now a little above its 200 week MA (has been for past few months). For the last 10 years it has NEVER held above its 200 week MA for more than a few months.

2 - TLT at uptrend line. $TYX at 10 year down trend line.

3 - Pretty big head and shoulders patters could mess this trade up, but they haven't broken out so I think the longer term trend lines and moving averages take precendence. May consider reversing position if bonds break lower.

4 - We have lost so many jobs over the past years, it will take a miracle to have those people back to work within a year. I think unemployment can stay persistently high, and bond yields persistently low for a lot longer than most people think.

5 - By being short the 2x inverse ETF I make money from not only the interest, but also as the ETF bleeds money from the effects of compounding volatility. If bonds rally hard then I'll actually have diminishing returns from the inverse ETF. But if they drift higher or chop around in a range, being short the inverse ETF will generate significant alpha.