Today we had a very significant breakdown in the gold market. Market pundits will go through lists of reasons in an attempt to explain gold's massive plunge below $1500/ounce. While the fundamental reasons are likely to be quite lengthy, the technical explanation is quite simple; gold had tested the $1550 support level multiple times in recent months, today sellers finally overpowered exhausted buyers.
So if you are a gold investor who is a bit puzzled after today's action (trust me, there are quite a few), what do you do? The answer is: NOTHING.
I've been getting emails and phone calls all day asking for explanations regarding the gold sell-off. Sure, the Central Bank of Cyprus might be selling its gold holdings soon, the Japanese also sold some gold during the last couple of weeks after the yen went into free-fall, Soros and Goldman Sachs are bearish on gold, market sentiment on gold is at decade lows, and the list goes on......but the simplest explanation is that gold broke an important and widely watched area of support which set off a massive bout of technical selling which lasted straight through to the equity market close.
We live in a "what have you done for me lately?" world and financial markets are even less forgiving. In a sense, the recent equity market strength laid the foundation for this week's gold crash; portfolio managers are notoriously attracted to asset classes and sectors that are working now in the moment, and they quickly lose patience with markets which have fallen out of favor.
While I cannot advise buying gold here due to the significance of this week's technical breakdown, I also cannot advise long term gold investors to sell into a market crash for the wrong reasons. The fear is palpable and fear breeds opportunity in markets, let's be prepared to seize that opportunity. To the charts:
Click to enlarge
GVZ the gold 'fear gauge' spiked sharply higher today:
Huge volume this week:
Barrick Gold is at levels not seen since the 2008 market meltdown:
It certainly doesn't look like the time to be selling precious metals, however, it would also be quite a display of hubris to advise investors to buy into a market which is in apparent free-fall. Instead, it is likely best to remain calm and do nothing.....
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I wonder how many GLD stocks banks had naked shorts sold on in the past two weeks– and deposited their shorts at GLD’s vault doors for collateral? LOL
The question is who is doing most of the selling; big players or small investors? A few big sellers probably caused the stampede and it was probably intentional. If it was intentional these big players will try to buy back their gold at a lower price driving the market back up. If we don’t get an immediate recovery I would start to worry that we are at a new consolidation level.
Until we have a way of publishing paper sales from bullion deliveries we cannot know what is going on. If Cypress sells its physical gold that means somebody smart knows it is worth something.
If Japan, which is now on a totally paper disaster, sells physical gold, the buyer must know that it is a good buy.
Thought:: Gold has not been money since 1971. Debt is the New Money, debt is infinite. Gold will have no monetary value until the new Post-Dollar system emerges. All the gold players are dealing in the future unknown. at this moment in this system gold is useless.
The smart money has two problems. If they do not play the gold volatility now they may lose Paper Dollars. To blindly hold physical gold at this time takes potential profits out of the extremely lucrative paper chase and as yet there is no guarantee that gold has to again become money in this modern Computer currency world.
Gold will certainly become the medium of Barter among the people again, but i do not see it playing in the Quadrillion Investment World again. I am keeping my gold. I bought at $350 and nearly wet my pants when it went to $200.
Graham
Its a nice sounding argument as to why gold sold off, but the big problem with this argument is that no real gold was sold. NONE!! The price is being determined entirely by speculators who illegally naked short sell any amount they want to (because regulators are not enforcing the laws) and buyers who never expect to take delivery. What kind of a useless system is this? All that is happening is the LBMA will run out of real gold much sooner. Then what? Probably the Western gold market will be shut down and anyone “owning” gold, that is those who have paper gold, will have it confiscated – because guess what – there is no gold. What technical argument will be used to explain this???
Good points
Your point well taken but u can make the same argument as to why it was going up. Speculators and not real buying. Central banks started to buy after the top was reached in 0/11, Check the facts. India especially. Speculators are always ahead of the game that is why they are called futures markets. Gold falls to 1100, once the Fed stops printing. Silver is the garbage metal and how it holds up here is beyond me. It’s always been the poor mans gold just to lag the moves in gold. Silver will soon follow eventually breaking 20. Weak hands trying to pick a bottom will be forced to sell due to margin calls. I have seen this movie too many times. Although gold is due for a bounce but only on an early gap down.
The Fed stops printing, LOL….
You nailed it. This phony game about Gold selling off and technical charts of paper contracts is laughable. The Gold market is doing just fine, it is the US bond market, the US stock market, and the USD which are all in denial but their day is coming and unlike Gold, they have no intrinsic value.
I hear about the paper selling all the time and I listen to the assertions about the physical market but there are no published figures that I can find for the otc market. This too will pass.
Thank you for the sage advice. Easy to read, hard to follow but my gut says that thing will be much different by the Fall or next spring.
500 tons of paper gold dumped into the market to create a waterfall in the price of gold and silver – period. A last-ditch attempt by the Fed and it’s collusive Central banks to drive down the only competing currency to the almighty buck.
Andrew Mcguire writes: “It’s pure short selling in the paper market, and the focus of all of this all is to reach and target as many long-stops as possible which they have done this afternoon. Then they can obviously cover these paper short sales. Historically, in order to succeed when the official sellers have come in, they have relied on being able to back up the paper market interventions with real physical supply, albeit, hypothecated or re-hypothecated, borrowed or leased bullion….
He continues:
“It’s easy to look at the technicals today and see this cascade down, that’s the long stops being tripped. But what we are seeing now is none of the physical supply is appearing. None of it is going to back up these sales. So this is a clear sign of
weakness. Now the bullion banks are really trading the Fed’s ‘virtual market book,’ but they are constrained. They are really constrained as to how far they can push these paper prices because the … Eastern hemisphere central banks, who are competing with each other to buy (physical) bullion, these are the guys that are picking up this discount. This (smash in gold) results in an exponential ramp-up in their physical buying. All they (central planners) are doing is delaying an extremely disorderly rebound (in the price of gold). Give it a few days because at least 90 tons of central bank buying today was seen below $1,550, into the afternoon fix (in London).
As we cascade down here you can guarantee that what they (Eastern buyers) are doing is ‘spot indexing,’ which is basically locking in the price in the paper market and will allocate that at an upcoming fix (in London). So I give it (at the most) two to three days before this has a massive rebound effect, and the short fuel above the market now is at absolutely unprecedented levels.”
Maguire also added:
“The fact that official sellers are even more reliant on massive coordination on mainstream media and verbal interventions to back up these virtual sales, it’s not going unnoticed by Middle-Eastern and Eastern centric central banks and sovereigns.”
Paul Craig Roberts writes:
“This is an orchestration (the smash in gold). It’s been going on now from the beginning of April. Brokerage houses told their individual clients the word was out that hedge funds and institutional investors were going to be dumping gold and that they should get out in advance. Then, a couple of days ago, Goldman Sachs announced there would be further departures from gold. So what they are trying to do is scare the individual investor out of bullion. Clearly there is something desperate going on….
“I have assumed from the beginning that it is the Fed’s concern with the dollar because the dollar is being printedin huge quantities at the same time that other countries are abandoning the use of the dollar as international payment.
The exchange value of the dollar is (being) threatened, and if that collapses the Fed loses control over interest rates. Then the bond market blows up, the stock market blows up, and the banks that are too big to fail, fail. So it’s an act of desperation because they’ve got to establish in people’s minds that the dollar is the only safe place, it is the only safe haven, not gold, not silver, and not other currencies.
And to help protect this policy they have convinced or pressured the Japanese to inflate their own currency. The Japanese are now going to print money like the Fed.
They are lobbying the ECB to print more. So I see this as a dollar protection policy.
…I know where the gold is coming from in the market, it’s just paper. It’s naked shorts, there is no gold there. If somebody wanted to take delivery on those contracts nobody would be able to provide it. I don’t know what the source of the (physical) gold is. Some people are saying that the actual stocks available for possession are rapidly declining.”
And finally: “This gold business (smash in price) is something to do with the dollar. They are trying to save this Federal Reserve policy of negative real interest rates. You can’t do that if the dollar loses value relative to gold because it implies it should be
losing value relative to other currencies. If the dollar’s exchange value drops, then the price of imports that come in here (to the US) rise. So you get domestic inflation, and if you have domestic inflation you can’t have zero interest rates, or negative real interest rates. So the Fed would lose control and that’s the basis of this policy.
They are trying to destroy gold as a (safe) haven from the dollar in order to carry on the Fed’s policy of negative real interest rates. That is what is driving the illegal policy of selling naked shorts in order to manipulate a market. If you and I were to do something like this without the government’s instruction or protection, we would be arrested. So the fact that it’s illegal, being done by the authorities, tells me that they are seriously worried about the dollar.”
Hi!, Patrons Of CEO CA Et Al:
In his historical treatise representative of Austrian Economics, HUMAN ACTION, Ludwig Van Mises declares that gold is money. Backing him up before the US Congress decades ago was the Senior J. P. Morgan who said: “Gentlemen, only gold is money and all else is merely credit.” Sense the wisdom of these gentlemen has been released upon human thinking processies, mankind has accumlated an overwhelming sense of amnesia whereby their insights into the world of real money have been set aside for debt accumulation to the extent now that the entire world economy has become addicted to debt. We need to pause to remember that the accumulation of debt is not the accumulation of true capital. It becomes a very hard and harsh reality of life that only a total collapse of the world economies will turn US back to the reality of real and true money: GOLD…..one way or another; sooner or later!! We can only play the game of monopoly so long, before we recognize it for what it is but a fantasy world that lacks true substance. One of the TOP problems of this fantasy world into which we have stepped like Alice In Wounderland stepped into hers is that we have to pay the Inflation Piper his dues. Governments try to depreciate the value of their debts by printing debt; while the rest of US pay higher prices for all cmmodities. The way to destroy any ecnomy through inflating of debt could not have been more throoughly thought out by Satan in order to destroy the morals etc. of all segments of Society as a whole.
We should have stuck with Article 1; Section 10 of the US Constitution which allows for only gold and silver coins as OUR Nations’ true blue money. OUR founders placed that statement into OUR Constitution for reasons by experences they fully understood which allowed them to want to help US avoid OUR present dilemas but by amnesia we have avoided it and looked the opposite direction creating OUR own peril.
RUSS SMITH, CA. (One Of Our Broke Fiat Money States)
resmith@wcisp.co
Well some real gold was sold during the last few weeks. It was me converting my Krugerrands into USD and then subsequently into BitCoin. I had to back away for a little while as the BitCoin market was getting to hot, but it’s definitely a good long term investment.
Wasn’t the consensus of those who really understand gold that folks should not hold paper, but only the real stuff??? Looks like a bunch just did. Like others say, count your real wealth in ounces, not dollars. If you can’t hold it, you don’t own it. Bitcoin, anyone?
YES, You’re very correct: “Do Nothing”.
Gold is going down because there’s a lot of shorting (probably naked shorts) as well as some long speculators getting caught in the downdraft. Gold is an enemy of fiat currency so the creators of fiat want to have gold (and other threats) punished. Seems that they are following their fiat religion which always creates havoc.
Gold will go up again as sure as central banks create little strips of green paper. It is indeed ludicrous to measure gold using a shrinking measuring scale (the dollar). No one can build much of anything when using an elastic scale, although the centralists keep trying.
I don’t intend to fight those centralists, so I’m speculating a bit. They have more financial backing that I could ever hope to have because they use tax money. So I’m along for the ride with gold inverse ETF. Will I get caught? Maybe for a few days worth of a reverse, but these things don’t usually move with the speed of light. In any event, those who hang on and do nothing will be O.K.