I entered an order to buy GDX (a gold stock ETF) calls on Monday, but didn’t hit the buy button, since no matter the technicals, I’m never very comfortable going against my understanding of the forces at play, even just for a short-term trade. Turns out those contracts would be up by a factor of three by today. I’ll just wait out the rally and go short again if things get out of hand, as in $32 for GDX. I have a hard time believing that the bear market in commodities is finished after only 4-7 months, when the economy is crashing through the floor and credit remains extremely tight.

Here’s a visual of the bloodbath and bounce in gold stocks (three-month chart from bigcharts.com):

Click for sharper view.

I’m in no hurry to go long anything at all, since the unwinding of the credit bubble will take years. I don’t think that we have seen any bottoms, not in gold, oil, copper, wheat or any kind of equities or bonds.

The risk is all to the downside. The looming risk of currency failure is the lone caveat, so it behooves everyone to have some physical gold — more if you are a renter with no other hard assets, less if you are an oilman or farmer or own significant real estate, within the range of 5-20% of assets for now. I intend to bump up my own allocation to near 50% or even much higher over the next couple of years, hopefully at very favorable prices.

This intention is predicated on the expectation that the US and other governments will before long saturate the markets for their treasuries and follow up by saturating the markets for their fiat monies. This will create all manner of chaos and depress real asset prices yet further, even from the very low nominal prices that I expect in the interim.

The assets to buy in the nominal and continuing real deflation will be those that generate income, since anything spinning off cash two years from now will have proved its mettle. Those companies and properties will be the most likely to hold their value in currency mayhem, and could generate fantastic capital gains in the recovery as earnings and multiples expand from highly depressed levels.

That said, all of this will take longer than even I think. Buffett, sell-out that he has become, was once a great investor, and he has remarked that sitting in T-bills is one of the hardest things to do.