Commodities Essential - August 22, 2011

Alert: talk of a gold bubble.

Let’s add DZZ now … 

There is little doubt among investors and analysts why gold is climbing higher and higher in price. But there is plenty of wonder as to when a much-needed near-term correction will commence. I think we’re close; and I think it makes sense to take a shot at capturing some of this expected downside. 

A relief rally in risk appetite plus a grab-bag of technical overbought indicators may be the catalysts for gold to retrace some of its recent spurt from current levels. Based on technical levels, if the pullback commences soon, I think a retracement down to at least $1700 an ounce makes sense and is very doable in short order.  

[I’ll include more comments and technical analysis on this short-term set-up in the regular weekly issue of Commodities Essential tomorrow.]

Let’s add DZZ (PowerShares DB Gold Double Short ETN) as a short-term play to capture a sharp breakdown in gold prices.  

Trade Essentials.

DZZ (Last Price: $3.89)

Buy shares of PowerShares DB Gold Double Short ETN, symbol DZZ, at the market. Then, if and only if this order is filled, place an order to SELL ALL your shares of PowerShares DB Gold Double Short ETN, symbol DZZ, at $3.58, STOP. This order is good till cancelled. 

[Please note this is a 2x-leveraged, inverse fund which means it will move roughly twice as fast, and in the opposite direction, as the underlying price of gold.]