Don't trade the gold bull Phase 2

Above is a monthly chart of the 10 year old gold bull. It is a perfect illustration of why it is terribly difficult to trade a fundamental bull reflective of a fundamental paradigm shift. Over the last month gold has broken above the long term upper band which is likely to become support for this second phase of the Bull market. Will we test this support line? Yes. When? Maybe tomorrow, but maybe at some point in the future when it is already much higher than it is here.

The second phase is when institutional money begins to catch on to the "Smart Money" that dominated the first phase, which lasted, in this case about 10 years. The second phase is now being dominated by the World's Central Banks, and a few top Hedge Fund managers. This is a powerful phase because it signals a paradigm shift back from easy paper money to hard money. It signals a time when the bizarre radical conversations of "Gold Bugs" and "End of the Worlders" about return to a gold standard and the dubious sustainability of debt, become the conversations of Central bankers and entrenched politicians.

Meanwhile 98 percent of Investment Advisors at places like Merril Lynch are advising their clients to stay out of this "speculative market." Radio Shill Rick Edelman announced last week that when clients ask about gold, he laughs at their stupidity. During the third and final phase of a bull, these Investment advisors will be leading the charge. This is when the price will go parabolic. We're a long way off from there.

So what is smart money doing now that we've entered the Second Phase?

Smart money is shifting into bullion. Smart money understands that the paradigm shift signaled by the Second Phase is indicative of tremendous volatility, uncertainty and danger in the world markets. Smart money has already made plenty on the leveraged paper gold play.

Those late to the bull and entering only now will advise of many wonderful ways to leverage the Gold Bull through options, gold stocks, and any variety of margin trades. The time for that was the last ten years. Not now.

Now is the time to move to the safety of bullion. And those who do will discover an unanticipated leverage play, when the premium of bullion over paper explodes.