The meme of this morning was “Gold has already regained half of its losses.”

That was the chatter I keep hearing. (The comment was blindly repeated by the usual suspects). As discussed earlier, I am now on all sorts of email lists informing me what a fantastic buying opportunity this drop was — but you may have missed it! Gold has already made up half of its losses!

I was surprised to hear that, considering GLD had bounced 8% after falling off of its highs by 30%. That sent me to the charts — here is what I found:

 

Gold has indeed regained half of its losses — if you only look back as far as last Tuesday:

 

Down 15% up 8% is indeed a > 50% retracement of the very recent drop.

 

But what is we are looking further than hours or days? If your time frame is measured not measured in days but rather is weeks and months, what do we have?

We can go back to Q3 of 2012:

 

Now its a 25% drop, and gold has retraced almost  a third of the fall.

 

Last chart: 3 years going back to 2011 highs:

 

In this case, its a full 30% drop, and the retracement is a little over a quarter of the drop.

 

When I look at any chart post-collapse, I want to know three things:-

1) How has it behaved in prior pullbacks?

2) How is the volume and quality of the trading around the present bounceback? (more specifically, is it robust? Are we looking at short covering or are new buyers coming?)

3) How quickly does the bounceback fade?

These can help us to determine if this is a mere stabilizaton, a legitimate turnaround, or a pause before the next leg down.

Category: Gold & Precious Metals, Investing, Technical Analysis

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.

21 Responses to “Contextualizing Retracements By Time Frame”

  1. Mike C says:

    These can help us to determine if this is a mere stabilizaton, a legitimate turnaround, or a pause before the next leg down.

    Barry, any thoughts on this yet. I can’t think of any crash that hasn’t gone on to test the crash low AT SOME POINT so I’ve got to think another test of 1322 is in the cards, but today’s price action both in gold and silver look like short-term upside breakouts out of the sideways consolidations.

    Technically speaking, I can’t imagine you get a downside break out of a 1 1/2 year trading range between 1525-1535 and 1800 for the bottom to form in a 2 day crash, but I”ll admit part of me finds the narrative appealing that perhaps there was some type of orchestrated purge and some big money buyers are seeing value at 1300-1400 price levels.

    Current short 2 mini gold contracts (one at 1504 and the second at 1354) and for now sticking to the thesis that the crash low will be retested at some point.

    • spooz says:

      Could it be that some are still waiting for the DJIA to retest its 2009 lows after crashing? When trying to determine the “right” asset class involves having an inside track on central bank policy, the old technical charts may not apply.

      • Mike C says:

        Perhaps this is semantics but I don’t consider the March 2009 action a crash. The crash was the 5-day sell off in October 2008 where the S&P went from 1100 to 840 in 5 days. In that case, the S&P retested that 840ish level on 10/27 and 10/28 and made lower lows on 11/20 and 11/21.

        Same thing in the August 2011 “debt crisis” crash. From 8/2/11 to 8/8/11 the S&P crashed from 1290 to 1119 over 5 trading days. That 1120 level was tested on 8 trading days over the next 2 months, and actually made lower lows on 10/3 and 10/4 at 1075.

        Same thing in the 1987 crash with the 225-230 level on the S&P being tested a number of times and actually making a lower low on 12/4/87 at 221.

        I could go on as I looked at a bunch of 4-5 day waterfall sell-offs and the next few months of price action.

        Based on that, I’m nervously sitting tight with my short positions with GTC limit orders to cover. That said, I’m not totally ruling out that the gold “crash” is something different in that perhaps it was some artificially induced orchestration where past technical patterns may not apply. If you head over to King World News, there are all sorts of articles talking about massive demand for actual physical and the divergence between the paper gold market and physical gold market.

        I’m in the camp with Al that the fundamentals of gold are intact (how could they not be with central banks creating gazillions in base money) but that the technicals are not. I can’t think of anything that crashes through multi-year support to put in a V bottom like March 2009 in the S&P 500 but I suppose there could be a first time for anything.

      • Yes, semantics.

        In August 2006 the S&P500 were over $1300. By March it was 666. If thats not a crash, I don’t know what is. 300 points in a week, followed by a snapback rally is rough, but I think we can all agree this was a full on crash.

        I dont see how anyone with a working knowledge of market history calls it anything else.

      • Mike C says:

        Let me try to rephrase this then and not use the word “crash”. I’m trying to draw a distinction between a large price decline that occurs over a few days/highly compressed period of time versus a large decline that occurs over a very extended period of time.

        The price movement you are referring to from 1300 to 666 is over 2.5 years. Even if you use the 1565 October 2007 top you are still talking over a year. Whether one wants to call that a “crash” or a “savage bear market decline” is irrelevant. The point is you cannot obviously look at price movement over 2.5 years or 1 year and draw anything useful about what is likely for gold over the next few months based on the last 1-2 weeks. Gold went from 1564 to 1322 over 3 trading days. If one believes technical analysis has any validity whatsoever then it would make sense to look for comparable drops in magnitude over a few trading days to a week and the subsequent price action as an analogue, not a price move over 2+ years.

        In most of the investment literature I’ve seen the term “crash” is usually reserved for a very short period of time. For example, Crash refers to the October 1929 crash of the stock market, not the entire extended bear market decline from fall 1929 to summer 1932. I’ve never read of the crash of 1929-1932. The Crash of 1987 refers to basically a 1 day drop. If we want to use the term crash for a more extended duration drop, that’s fine, but then we need a new word to differentiate the ultra-short term drop that occurs over just a few days.

  2. Petey Wheatstraw says:

    I’m surprised, BR, by your focus on this single commodity — even if there are folks who are basically religiously fanatic about it. (Disclosure: I hold a substantial amount of gold and silver, entering those positions in the $600 and $11 levels. I re exchanged half of my holdings for fiat at roughly the $1,500 and $30 – $35 values).

    I am not a “gold bug,” but I do respect the holding power of this commodity as a form of money and as a store of value over the long term (such term being, undeniably, the total of human history). I am aware that PMs could go to zero. I am also always watching the central banks for their actions vs. their words when it comes to their possession of this barbaric relic (I’ll liquidate mine as soon as they liquidate theirs).

    As far as retracements go, I find this one to be the least natural/organic, or rational (beginning at April, ’09):

    http://stockcharts.com/freecharts/historical/djia2000.html

    When I look at this chart post-collapse, I want to know three things:

    1) Where did the liquidity for the bounce come from (seeing that many were wiped out by the prior bust)?

    2) How legitimate is the volume and quality of the trading around the present bounce-back? More specifically, is it organic or a result of governmental/central bank support? Are we looking at massive support being provided by the Fed in the form of QE, or are new buyers coming in?

    3) If it has anything at all to do with QE, how quickly will the bounceback fade once QE is withdrawn?

    The following chart is also interesting (more so even than gold), when it comes to being a real barometer of the greater economy. As it not collected by the insane or obsessive (as gold seems to be), I think it would be a much more relevant topic of conversation (to equate to one of your examples, above, this one also encompasses what has transpired since Q3.2012):

    http://www.infomine.com/ChartsAndData/GraphEngine.ashx?z=f&gf=110563.USD.lb&dr=6m

    • I thought the repeated comparisons to APPLE & CHINA made it clear this is not about Gold.

      • Petey Wheatstraw says:

        To a point, I suppose you are correct. If I am out of line, I offer my sincere apologies. However, to me — and it might simply be a matter of perception — it seems that gold is the focus.

        The terminology: “usual suspects” who have “blindly repeated” opinions, does seem a bit derisive. Those as fervent about Apple and China seem not to suffer the same treatment.

        Again, in light of the first chart I linked to, it would seem that there are glass houses and rocks to be thrown anywhere one looks.

      • flakester says:

        Seems that way to me too.

        There was a dow/gold ratio chart from ChartOfTheDay within the last week that showed a trend line break. Not only was the down trend line drawn much more aggressively than the uptrend line (from 1982-2000), but the chart didn’t show the 1970s bull where there was a similar and large drop (from ~$200 to ~$100 from 1974-1976) before gold went on to top around $850 in 1980.

      • Al_Czervik says:

        @Petey
        +1

        Associating the term “buggery” with people who have owned gold at times over the past 10 years is provocative, to say the least. Particularly when no similar turn-of-phrase has been applied to investors in Apple, China, or the broad stock market.

        And I have noticed that gold “bashers” have been emboldened to crow in these comments about the “uselessness” of gold based on its lack of “intrinsic value” (whatever that is). These arguments generally reflect a religiousness of a different type.

        My position in GLD was initially established shortly after the ETF became available and I have reduced and added-to the position over time, depending on my comfort with the price action. I held a large investment in gold at the top and have sold substantial amounts all the way down (still have a large position). I am happy with my performance relative to the S&P 500 over time…particularly considering reduced account fluctuations.

        IMO, the fundamental case for gold is still intact although the technicals are not. I don’t think gold’s long-term run is close to being over but I will let future price action tell me what to do.

      • rd says:

        The goldbugs are people who believe that gold will keep on rising because it is rising and it will be the only stable form of wealth a few years from now. Some of those people have been throwing their personal wealth into a hole in their backyard for several years now. Who knows? Maybe they are right?

        Gold has long played an important role in many rational portfolios (Permanent Portfolio) where it is viewed as a financial asset with relatively low correlations to other assets and therefore a valuable tool using rebalancing approaches. However, the Permanent Portfolio only works when the discipline is maintained and the out-of-favor items are purchased at the expense of the expensive ones.

        I bought sme CEF in late 2008 when it was very unclear what was going on with money supply etc. I sold half that holding in 2011 and have the remainder tucked away in a small corner of my portfolio that is basically labelled “In Case of Emergency Break Glass”. having 5% or so of your portfolio tucked away in various investments to address specific risks is, to me, just like having some low-cost insurance policies. That is very different from investing my life savings in an underground bunker.

      • History has proven them wrong repeatedly.

  3. patfla says:

    Just sold my GLD. I’d bought in 2008 at $85. It peaked at $185.85 in July (I think) of 2011. And summing together the many variables that apply to Gold/GLD I figure the trend. for at least a while, is down.

    Bought some TSLA a couple of days ago. I don’t like buying into a steep up-curve but the many variable that apply to Tesla are only becoming more compelling with time.

  4. Boots or Hearts says:

    There is a fine piece on Gold at GMO’s website entitled:

    Present and Emerging Risks to the Gold Trade — Amit Bhartia and Matt Seto

  5. Roanman says:

    Of course if your time frame is measured in years and decades, Gold is looking like a hell of an investment.
    Since we’re cherry picking our time frames.

  6. socaljoe says:

    It’s important to understand that GLD and Comex futures are not gold. At no time during this crash were you able to purchase physical gold anywhere near the lows indicated on the charts. There was no forced margin account liquidation in the physical market. Dealers simply refused to sell at the spike low or they raised their premiums.

    • Funny, when GLD and paper gold were driving prices higher, no one said boo. When they helped drive the collapse, suddenly they were illegitimate.

      Reminds me of the National Association of Realtors — subprime foreclosures really shouldn’t count when calculating average prices, but during the run up in home pricesd, they were just fine with subprime mortgage driven home prices.

      • socaljoe says:

        Yes, you are right. It was the traders using paper gold derivatives who drove up the price of gold beyond a sustainable trend and who just got flushed. I suspect they’ll be back once momentum is re-established. I doubt it will affect the long term price of gold much, other than to add volatility.

        My point was that physical gold is not the same as paper gold derivatives. Physical gold did not suffer the extreme crash that GLD and Comex futures did. At the bottom you could have sold your physical gold for about $100 more than than the price of GLD. There was plenty of demand for physical even while paper was being dumped. The prices of physical and paper derivatives diverged. I wonder what would happen if Comex suffered a failed delivery or the custodian of GLD became insolvent. I suspect we would find that there are other parties who have a claim on the gold backing these paper instruments and you would be forced to settle in cash (at the paper price).

    • Mike C says:

      socaljoe,

      Do you have a link or can provide any evidence of this. I’m not biased one way or another….just trying to get to the truth of this. My understanding of the futures market is that what ensures the integrity of the “paper” contracts traded is that eventually short positions must close the contract or physically deliver the commodity. In recent days, I’ve read a number of pieces that suggest something is off with the physical delivery of gold with either claims being settled in cash or talk of settlement in cash.

      I don’t claim to be an expert, but I’ve read enough the last week or so to not categorically dismiss as conspiracy nutcases the idea that there is some discrepancy or divergence between the futures price of gold and actual transactions in physical gold. I’m simply trying to get to the bottom of this.

      As I’ve mentioned upthread, I went back and looked at the post price behavior of several “crashes” (a few day large percentage drops) and over the last 9 trading days gold is diverging from the standard script enough for me to question if there was something materially different about its 3 day crash.

      • socaljoe says:

        Hi Mike… I checked several bullion dealers around the country as the prices were crashing. Many of them post their availability and premiums on line. These are real prices for real precious metal products. You can also check closed auctions on ebay to see what people have actually paid. The price divergence is even more extreme in silver. Right now, 1 oz. silver bullion coins are selling for $32-$36 on ebay… not at the $24.40 spot price.

        I don’t know anything about COMEX trading and don’t use GLD. But I do know that they are both paper derivatives which track the price of gold very well 99+% of the time. I think they’re fine for trading… much more convenient and cheaper transaction than physical. But I am concerned about counterparty risk. What if there is a failed delivery on the Comex? What if the GLD custodian becomes insolvent? I suspect the physical gold backing these instruments has been pledged as collateral to multiple other parties… call it fractional reserve paper gold… and when it’s really needed it may not be there and you will be forced to settle in cash at their price.