Gold Bugs Should Buy Golden Corn Instead

03/12/2015 7:00 am EST

Focus: STOCKS

Gregory Harmon, CMT

Founder and President, Dragonfly Capital Management

In the short-term, the ratio of Corn to Gold is breaking out to the upside, so Greg Harmon, of Dragonfly Capital, suggests that gold bugs start selling their Gold to buy the “Gold from the Cornstalk.”

Gold bugs are a serious crowd and rowdy at times. In fact, I probably upset at least a dozen of them from the title alone. Let me dare to go further though. Gold has done nothing but move in a broad range for over two years. Teasing at the top and nail biting at the bottom, but a range. My charts suggest more downside which could actually break that range…lower.

Now that all the gold bugs are good and riled up, let me shift focus just a little. In the short-term, the ratio of Corn to Gold is breaking out to the upside. All gold bugs should be selling their Gold to buy the Gold from the cornstalk.

chart
Click to Enlarge

The chart above shows the technical reasons why. The ratio moved off of a low at 0.20 and continued to a consolidation around 0.225. This consolidation tightened into a symmetrical triangle and broke above that to the upside last week. Monday confirmed the breakout with a follow through candle higher. And the momentum indicators also support a continuation with the RSI bullish and rising and the MACD moving higher. This gives a target of a ratio of 0.245. Right where it was at the end of the year.

There are many ways to trade off of this information but the most straightforward would be to buy Corn (CORN) and sell Gold (GLD) roughly on the ratio of 400 shares of Corn per 100 shares of Gold.

By Greg Harmon of Dragonfly Capital

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