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One of the most interesting patterns in the mutual fund industry is when
a sector that had been weak for a year turns around and becomes the
hottest sector while the reigning hot sectors become a toxic dump for
investor's money. Sports fans might recognize this as the "worst to
first" syndrome. This phenomenon happens for a good reason. When too
much money chases a hot sector, that sector must start to underperform.
After all, if something on Wall Street is too obvious, it is obviously
wrong!

And that brings us to GOLD. Wars, terrorism, currency turmoil. All of
these things used to make the yellow metal move higher. But times have
changed and now the place to stash your cash in times of uncertainty is
the U.S Treasury market where, unlike gold, the investment pays you to
sit and wait. Gold has also suffered from producer selling and selling
from the central banks of many countries where gold has been sold and
replaced with T-Bonds.

But last week, a major psychological shift seems to have taken place. In
fact, my WOLF system, which uses option volume and open interest to find
"smart money" activity in the options market, late last week has spotted
what might be "informed" accumulation of call options on a major
NYSE-listed gold stock. If this is a real turnaround, could there be a
fundamental reason to buy gold?

What I see is that the currency crisis might continue to spread. Like
fans doing "the wave" in a ballpark, we could see investor's fear of
currency spread to even the developed countries including the US. If
that were to happen, there would be a complete breakdown in the world
financial markets. Dollars would be dumped and if the dollar cannot be
counted on, where could traders turn to for a safe haven? The only
answer would be GOLD. And the metal has been beaten down for so long
that any move up could be awesome. The irony would be that the last
great bull market in gold occured due to inflation. This time around,
the catalyst for such a move could be a world wide depression!!!

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