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Live New York Gold Chart [Kitco Inc.]

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What is up with Spot Gold prices lately? After trading up to $1900 (double top?), its been a painful ride down. Today, it broke through $1700 to the downside, which may flip a few technicians negative.

Over the past few months, we have discussed Gold as a trade repeatedly. In the presentation I made at the Agoroa conference in Vancouver, I titled one section “Gold is a Trade, Not a Religion.” We also noted that Diverging ETFs: What Are GLD & SPY Telling Us ? (August 23rd, 2011).

The Gold trade may not be over — especially if we eventually see a QE3 — but for now, it looks like it is going to be a painful backing and filling process, as the shiny yellow metal consolidates all of 2011′s gains. In 4 days, Gold has retraced 6 weeks of gains, taking us back to prices last seen in early August. I have heard rumors of Gold being sold to cover margin calls in equities.

Serious support exists at 1600, then at the 200 day moving average, around 1525 . . .

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NOTE: Here is what I discussed at Agora: When the long term trend channel has an upside parabolic breakout, you have to peel off 10 or 20%. You can always buy it back cheaper, when the parabola collapses.

Category: Credit, Gold & Precious Metals

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

40 Responses to “Gold Off $100; Trades Down to $1630”

  1. Global Eyes says:

    It never fails because it’s never happened. One quick whiff and my olfactory nerve detects the distinct smell of deflation. It happens whenever gold drops $1oo/ounce. It’s automatic.

    Pensioners should pay attention to what’s happening in Greece. Here’s why: Imagine if some authority told you that retirees would get only 50% of what was promised /earned / guaranteed /?

  2. SurvivalAndProsperity.com says:

    “I have heard rumors of Gold being sold to cover margin calls in equities.” Financial MSM blaming it on weak hands bailing out, mad rush to Treasuries, U.S. dollar, hedge funds exiting a recently-hot trade, hedge funds selling to meet redemption requests, and probably some others I’ve haven’t yet come across today. Welcome to the roller coaster ride that is gold, right?

  3. mark says:

    @Global Eyes

    A lot pensioners in the US have already gotten exactly that message when they found out that the pensions promised to them by their companies were kaput and they would have to go to the PBGC to get a fraction of what they were expecting (btw, the PBGC does not have the money to pay it’s obligations – will it be refunded by Congress? – don’t hold your breath).

    When my former company closed several sites and laid off 700 highly paid employees many were eligible for early retirement. Guess what? Almost 90% cashed out and took the lump sum. I’d say “Message received”.

  4. dougc says:

    Gold was predicting eventual hyperinflation.
    Bond market is predicting a prolonged recession/depression.
    The bond market is right at least short term.

  5. The gold trade is never over. The question is what is the profitable trade? It’s best season is drawing near to a close so it may have had it for the next month or so on a seasonal basis. Silver is also dropping in sympathy so there is lots of confirmation.

    This is why you don’t go all in on one product.

    Of the cash I’ve allocated towards my gold trading position I went from maximum possible cash (which it has been for quite a few weeks) to 57% cash within the last few days. It certainly has been a whipsaw

    *limps off the stage*

  6. dr dre says:

    this is simpler than it seems, and barry, sorry, you have it wrong on gold as a trade — just broaden your time horizons and look at a 10 year chart. Here it is:

    1. Hot money margin calls are forcing selling of gold futures. ( there is a s***load of liquidity in the system. )
    2. Gold is money that is printed in very limited quantities. It will go up as the world hopelessly prints money, round after round, attempting to prop up the “system”

    …. when do you SELL gold (for fundamental reasons?) when we no longer have negative real rates and/or when the economy booms (and interest rates will go up and negative real rates will disappear). This is several years away I’m afraid.

    ~~~

    BR: I dont care WHY Gold fell $300 — its irrelevant. You are rationalizing sales several $100 dollars higher. I only know that it went parabolic, and that was a sell signal.

    Fail

  7. Petey Wheatstraw says:

    I bought gold (physical) at around $650, and again at around $750 (followed by silver at $14 and $20). It was hard to pull the trigger, as it’s such controversial stuff, but at that time, it was fairly obvious that the wheels were coming off the economy. Sold half of gold at $1500, and half of silver at $42, so I more than recouped my original investment. For those who bought more recently, this selloff must be frightening.

    There are a number events that can trigger a selloff in PMs (recent margin calls on those who used leverage, for example), as well as the price distortions caused by ETFs, dueling fiat currencies, and Fed chicanery.

    I think the resurgence of the dollar is primarily responsible for the sell off over the past couple of days, but as I have zero faith in the dollar as a store of value (if there’s a good argument to the contrary, I haven’t seen it), I won’t even consider selling. Yet. (Maybe never — I think I’d sooner have a jeweler turn it all into the biggest piece of bling the thugs and gangsters have ever imagined).

    At least I know it won’t go to zero.

    The most interesting aspect of gold as a store of value is that central banks continue to acquire and hold it, even as they continue issuing fiat currency(ies), and talking the shiny yellow stuff down.

    constantnormal had a good comment earlier today, (Groping for Some Stability, at 9:30 am), that included, among other things, his thoughts on gold vs. bonds.

    What does the future hold? Who TF knows, but I’m pretty sure it won’t be monetary/fiscal/financial stability. We will see.

  8. Petey Wheatstraw says:

    dougc Says:

    “Gold was predicting eventual hyperinflation.”

    I don’t think that’s ever really been the driver. Gold is purchased in times of instability (political and/or financial), and brother, we have instability coming in tsunami waves.

  9. PDS says:

    “what is up with spot gold prices lately?”…the answer is obvious BR….No QE?…no buying risk assets including gold, silver, stocks etc etc…it’s as plain as the cuban in your humidor

  10. Pantmaker says:

    Still heavily short gold and now nicely green. As I have said before…it is easily my largest single trade in years. My hunch is it will be on for the next 12 months. That rising support line will soon be replaced by one of equal significance in the opposite direction. Paper gold is a click to sell….the late to the party physical holders ironically are the one’s most at risk of getting caught flat footed…especially if price goes into any sort of free fall. Downside target is 900…with a likely overshoot.

  11. this..”“Gold is a Trade, Not a Religion.””
    +
    “…When the long term trend channel has an upside parabolic breakout, you have to peel off 10 or 20%. You can always buy it back cheaper, when the parabola collapses…”

    has to be Correct..

    even, if Au goes ‘Asymptotic’, the other ~80% is, still, in hand..but, then, One better hope they have more than, just, Au, on hand..

    Tiabbi nailed the Title of his Book..”Griftopia” — b/c, in this Poli-Sci-Fi Pachinko parlor that masquerades as ‘Our Economy’ — it’s, all, ‘just a Trade’ ..

    http://www.thefreedictionary.com/grift

  12. bobby says:

    Get real guys—the metals market tanked so the ZH guys could scream about raised margins/more manipulation etc…

  13. Mike C says:

    Serious support exists at 1600, then at the 200 day moving average, around 1525 . . .

    Since early 2009, the 150 day moving average has been meaningful support (currently at 1579). 1550-1560 is also the breakout level from the most recent consolidation. I would view those as much more significant than 1525.

    FWIW, I sold 1/2 my long-term investment position weeks ago at 1750 for exactly the reason listed…sell into parabolic spikes. On a trading basis, actually shorted the futures a few days ago at 1793 and covered today at 1649. Not a bad gain for 3 days. 1650 is also minor support so if we close above it, we could consolidate here as well.

  14. Two of the main functions of gold and gold stocks are as currency insurance and a volatility trade (I lean towards the second but build my base in it because of the first). The first naturally begets the second because currencies are fiat and they are controlled by fickle men

  15. Petey Wheatstraw says:

    A little context never hurts.

    Can’t vouch for the site (looks like a teenager designed it, and it’s a mess of data), but I’m pretty sure the data is legit.

    http://investmenttools.com/median_and_average_sales_prices_of_houses_sold_in_the_us.htm#re_div_gold

  16. Detroit Dan says:

    Gold is not money (not used as a medium of exchange anywhere) and is an almost pure speculative investment. Unlike other investments, there is not much backing the price of gold. No physical house, no government — just some limited industrial and consumer uses. I expect its price to crash in coming years…

  17. Rouleur says:

    …in the PM’s we have a couple month setback in a 10 year uptrend…WTF, it was definitely getting ahead of itself…recent buyers may well get shaken out…remember 2008…get liquid – sell the stuff that made you money, hold on to the mark-to-make-believe crap and hope it eventually comes in the money…so, this is a european bank and sovereign crisis…margin calls have been made and will continue, I suspect and the need to demonstrate you still have some chips is on…Greece is Lehman, who is AIG?…europe’s banks still as levered as the US investment banks were in 2008…Turbo Timmy was “schooled” by the euro money masters last week, he still may have the last laugh, or, if not a laugh, the last “I told you so”…the ECB will turn on the printing press, despite their posturing…the US banks stopped funding the euro banks through our money market funds, now there is no money…Trichet will do it before he hands over the reins to Draghi…the Germans will kick and scream and throw the toys out of the pram, but, they have little choice if they want their european dream to be realized…hold on to your PM’s…

  18. Moss says:

    Sounds more like front running of CME margin hikes. Gold, Silver and Copper.

  19. Rouleur says:

    …for some gold is a greed trade, for others it is a fear trade…the levered greed trade guys just puked – the fear trade folks are getting a discount…

  20. Petey Wheatstraw says:

    Detroit Dan:

    Governments might not back the price, but they all own it (the Brits sold off 395 tons of gold from July 1999 to March 2002 at an average price of $275 per oz. The sale raised $3.5bn). Governments also fight tooth and nail to persuade their citizens that it’s NOT money (going as far as confiscation, at gunpoint).

    The only reason gold isn’t traded as money in the US is because it’s illegal (unless you want to trade a gold Eagle for face value: $50. And that speaks volumes about the durability of fiat currency, as “money”).

    The price might “crash” from its recent (nominal) highs, but gold has always and everywhere been considered precious. Who knows exactly why (there are several very good reasons), but it is.

  21. David in D says:

    I think predictions of Gold’s demise and a deflationary spiral are premature. If you look at long-term (multi year support) we just above the support line. Gold simply gave away the last 10-12 weeks of gains. I agree with several people above that the real test of gold will be in the next $200 dollars. In terms of GLD 155 is the support line on my graphing. So, I’m not super scared within another 2% or so of drop.

    It might be a ‘golden’ time to buy back in. That said, don’t listen to me because I got absolutely crushed on my long GLD position today… I might just be deluded (I hope I’m not.) :)

    BTW, I really love most of the comments on Barry’s blog… this is (by and large) a very thoughtful community of readers. Thanks for including me.

  22. dougc says:

    CME raised margin requirements for gold,silver and copper after the markets closed, mystery solved.

  23. Rouleur says:

    …have a colleague that, after a year or more of dithering, bought into the PMs two weeks ago…I asked him yesterday if he had sold, kinda tongue-in-cheek, and he said no, and if he had more cash, he would buy more, then I said something about gold, and he said he was mostly buying silver…jeez, he has been crushed as a newcomer…I did not have a chance to speak with him today…we’ll see how he is doing on Monday…

  24. Rouleur says:

    …Barry, I think of it a bit differently…the greed trade is “make as much money as possible, lever up, etc”, fear trade is the whole monetary system is collapsing, i better hang on to something of intrinsic value, something real…so, to say that greed is really driven by the fear of not making money, maybe that is a way to “twist” it, but…not really the way i see it…perhaps as a money manager…but, then there is more than one way to manage money…and, gold is money…to be sure…

  25. MikeG says:

    The Canadian and Australian currencies also have dropped sharply in the past few days — looks as if the whole ‘pro-commodities’ complex is unwinding.

  26. VennData says:

    American’s Choose GOLD!

    “…Gold is Americans’ top pick as the best long-term investment …but men, seniors, middle-income Americans, and Republicans are more enamored with it than are other Americans…”

    http://www.gallup.com/poll/149195/Americans-Choose-Gold-Best-Long-Term-Investment.aspx

    Thank goodness there are people on TV who are wiling to sell you their precious gold.

    Just watch TV from the comfort of your under-water-home’s living room and YOU… WILL… DO… WELL… GOLD Prices ALWAYS GO UP!

    Real Americans Choose GOLD! And for God sakes ignore the New York Times.

  27. Rouleur says:

    …sell the stuff that made money, on leverage…the “greed” trade…to pay for what?…margin rises, other…?

  28. Mike C says:

    I agree with several people above that the real test of gold will be in the next $200 dollars. In terms of GLD 155 is the support line on my graphing. So, I’m not super scared within another 2% or so of drop.

    The real test…IMO…and I am talking the multi-year trend going back to 2001 NOT intermediate-term moves would be 1470-1480. Breaking that level to the downside would constitute making a major lower low. Even in 2008′s decline, gold didn’t do that halting at 700. I am encouraged though at all the calls that gold is now going to plummet..adds to my conviction the secular bull is still intact. I’d be worried if the conventional wisdom is just another dip to be bought like tech/Internet in 2001 or housing late 2006/2007.

    Another commenter nailed the fundamental aspect. It is ALL about real interest rates. As long as they stay negative, the long-term bullish driver is intact

  29. Petey Wheatstraw says:

    MEH:

    “Gold is a Trade, Not a Religion.”

    But religions sure use the hell out of it (from the tombs if the Pharaohs, to the golden calf, to the Aztec’s religious talismans, to the Pope’s jewelry).

    And you are absofreekin’lutely correct that it’s not the singular asset that should be held. All things considered, other than a few months worth of spending money, I can’t think of anything I trust more, except productive real assets (which aren’t very liquid), owned outright.

  30. Rouleur says:

    Mark and ex-Marcus, Petey – gold IS a bit of a religion in its own right…as much as any money is…not that a clever fellow ought not see it as a TRADE, as well…

  31. StatArb says:

    CME raised margins as was rumored the last 3 days

    gold +21%
    silver + 18%

  32. Petey Wheatstraw says:

    Most big moves in PMs, for the past year or so, are sudden and steep — major holders, apparently, buying or selling for reasons only they know. This one is a steady and sustained decline. Don’t know what that means, but there’s been a major shift in stocks and commodities after a week of milestones (including GOP intransigence over petty issues, Fed policy, the Eurozone, etc.). The dollar is what’s up, but I don’t think it’s up, or will remain up on its merits as a safe haven, but as the medium of exchange for global transactions.

  33. the pearl says:

    Nobody can imagine a world where gold can possibly collapse and the dollar can stage a multi-year rally. Too early to tell but I am 100% certain that most investors current portfolios represent what the ideal portfolio, in retrospect, would have looked like in 2000 and is not prepared for a massive shift in asset class performance over the next 5 to 10 years.

  34. markmotive says:

    Gold is a unique beast…it performs strangely during times of extreme financial stress.

    Take a look at 2008 to see how gold performs during a market crash:
    http://seekingalpha.com/article/295567-how-gold-performs-during-a-financial-crash

  35. Mr. Wonderful says:

    Gold is a commodity but seems to think that it´s some sort of a higher form that isn´t obliged to follow the flock. Yes, there seems to be some religious air about it. And professional doomsayers tend to sell it.

    Late April, the Dollar bottomed and stocks and commodities topped. Gold was at $1500. Instead of following the other members of the commodities complex down from a cyclic top, gold actually rose almost 30%.

    Commodities are generally in a state of collapse, CRB is already practically at pre-QE2 level. To join the flock at this point and then go with it down to lower levels the golden sheep needs to hurry down to $1200.

  36. jbruso says:

    The yield curve continues to flatten due to Fed action. Mortgage rates are now below 4%. = Stimulative

    Dollar to Yuan steadily decreasing month to month; Good for exports, manufacturing = Stimulative

    Previous 6 months of inflation have been slightly elevated (3 – 3.7% p/m) but nothing indicating a problem.

    Oil is dropping to $75-79bl range = Deflationary, but stimulative

    Unemployment flat = Not stimulative, but not contributing to stagflation either.

    Gold dropping = Reaction to deflationary pressure; 0 risk of stagflation or hyperinflation in short term.

    Gold is no longer a safe long term bet on hyperinflation or stagflation; Even if either did begin to occur, monetary policy is pulled so tight that some quick moves to raise rates by the fed would stop either.

    Hyperinflation just isn’t the same fairytale today as it was in 2006-2008 when the world was ending.

  37. machinehead says:

    Buying a parabolic rise has never been a good trading strategy … whether in gold, silver or T-bonds.

    Are you listening, Benny Bubbles?

  38. Mr. Wonderful says:

    machinehead, I think the bond is history´s best organized bubble. Looks like they´ll buy the yield down to almost zero.

    Check out the consistent channel in the 10-yr 1987 to date, from 8% to under 2%.

    http://finance.yahoo.com/q/bc?s=^TNX&t=my&l=off&z=l&q=l&c=

  39. market_disciple says:

    I always enjoy reading your analysis, BR. I also enjoy reading the colorful responses from other readers. Combined, these different opinions help validate my own thinking and tactics.

    I am not smart enough to intelligently explain why different markets move they way they move. However after watching around 25-30 different markets (Commodities, bonds, equities, currencies) every day, for some reason, there seem to be noticable correlationships between different markets and the nuances of each individual market.

    Instead of getting hung up with trying to completely understand why things happen, I personally made a decision to focus more on minimizing my risks and maximizing my gains by smartly placing my bets when the risk/reward ratio and the probability are favorable to me with discipline. In parallel, I slowly try to educate myself with the vast subjects of trading.

    I know this is very arguable and unscientific, but from this point on, when I trade gold, to me $1,900, $1,630, $1,545, $1,455, and $1,170 represent the best horizontal levels to place my long or short bets. I’d know whether I’m right or wrong rather quickly.

    Good luck to you all.