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All That is Gold Does Not Glitter
In the wake of gold’s panic inducing $105 sell off, players across the hedge fund universe are reassessing their relationship with the barbarous relic. What started out as a long term commitment is suddenly morphing into a short term fling, or maybe even a one night stand.
The yellow metal is now down 7.6% from its $1,428 peak set only four weeks ago. The technical analysts among you will recognize the chart as screaming a “head and shoulders top”, which bodes ill for short term price movements. It has definitively broken the 50 day moving average at $1,383, and you can bet that many traders spent the weekend gauging their tolerance for additional pain.
Gold is now facing some daunting challenges. High prices have cause scrapping of old jewelry to quadruple, unleashing fresh new supplies on to the market. Have you received a torrent of “come ons” from websites offering to buy your old gold? That’s what I’m talking about. Rising interest rates are also adding some tarnish, as gold yields nothing, and costs money to store and insure. A panoply of new gold related ETF’s have diverted buying away from the physical metal towards paper surrogates.
It is no longer a secret that gold is one of a few places to protect your wealth from the coming surge in inflation that Ben Bernanke’s printing presses assure. So by now, everybody and his brother are in on the trade with a big fat long position. I am a firm believer in the “canoe” theory of investment management. If too many people bunch up on one side of the craft, the whole thing tips over. Finally, gold failed my “cleaning lady” test. When Cecelia started asking me how to buy Mexican gold pesos, I knew it was time to start entertaining short plays.
Gold has been on a tear for the last seven months, rising by a thrilling 29% in a year, much of it powered hedge fund money of the hottest sort. So a serious bout of profit taking is overdue. With US equities, particularly financials and tech stocks, the flavor of the day, you can count on many of them to take profits on the yellow metal and reallocate to paper assets. The fact that the world is now solidly in a “RISK ON” mode also solidly favors some gold liquidation.
The easy target here is the October support level of $1,320. If we get some good momentum going, traders will start throwing up on their shoes, and we could touch the 200 day moving average at $1,270. My friend, technical analyst to the stars, Charles Nenner, thinks that in a worst case scenario at gold could plunge to as low as $1,000 (click here for my radio interview at http://www.madhedgefundtrader.com/january-10-2011-charles-nenner.html ).
Thanks to the yellow metal’s recent popularity, there are a profusion of instruments with which you can play the downside. You can buy the 1X bear gold ETF (DGZ), or the 2x version (GLL). You can short gold futures on the CME.
I am going to go for the easy money here and try to capture a bite of the down move of the main gold ETF (GLD). With $57 billion in assets, it is the world’s second largest ETF, right after the (SPY). It is ripe for some profit taking. It will be interesting to see if the ETF can handle liquidations on a large scale, whether it might trigger a total melt down in gold, and how many camels you can fit through the eye of a needle.
Mind you, I think gold is still going up long term, and that the old inflation adjusted high of $2,300 is a chip shot in a couple of years (click here for “The Ultra Bull Case for Gold” at http://www.madhedgefundtrader.com/december-31-2010-4.html ).
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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top,
I have been paying attention to your replies. I am in PMs at 10% of my assets by value. I have finished buying, was buying through time from the 1980s until just now.
Your reply has even more value in that you are somewhat suggesting diversification. Diversification and agility will help any or all of us be winners in rough times.
Great, inciteful, deeply-well-thought-out commentary...Head and Shoulders top? About that golds chart I say this: IN the hold of every sunken ship, you will always find a chart.
So my investment corrects from $13.95 to $11.75 or $12.00 - what do we care when we are long at $3.25?
But thanks for the insights...
The Feds will do anything to get you into dollars or Fed notes right now. You are told that housing is failing so that's a bad investment. You are told PMs are dropping like lead bricks. You're told the stock market is about to crash. So, why does the Fed want you in cash or cash equivalents? They are probably about to issue a new currency. Your old dollars will be worth 0.1 new dollars. Cash is in old dollars and all deposits and debts are in old dollars. Only those with hard assets will get through the currency changeover without taking a horrible beating.
Well, this is not a very convincing argument. The fundamentals behind the rise in gold are solid... and I am tired, sick and tired of hearing that gold does not have a yield... as if the zero coupons issued by our government yield anything.
This guy is a bit late in his call. The head and shoulders was obvious weeks ago... this will be a buying opportunity.
The global economy can grow... and it probably will. However, lurking in the background are the problems that we all (at least around here) know are growing and metasizing (sp?)
Good to see you back mad hedgie. Drop by more often.
Why does this ipad doublepost...grrrr
one common response is to 'edit' one of the double-posts and put a literal '.' or 'dupe' in place of your original text.
you can re-write your own history as often as you like, assuming you do it before someone responds to it.
..."everybody and his brother is in on this trade ..." HUH ? if he is implying that a significant % of the PUBLIC is long gold (either physical &/or etf) then he is WAY wrong . . . . . i would guesstimate that only maybe 10% of the public has exposure to PM's . i would luv to hear what other ZH'ers think about my '10%' figure . . . .
I would think that Stuck just above is about right. I too have heard that only some 3% or so of Americans have non-jewelry physical gold in their possession.
I say 2%.
I want to become a pundit.
Are there certain qualifications/certifications necessary to become one?
Dick, do u know my friends Mike Hockbyrns and Peter Fitzwell ? just wondering...
The only bubble is in trust in institutions. Gold is just running off of that.
Nominal value of gold is confused by paper futures and counterfeiting gold paper so JPM can bail its short position.
The real price of gold is still on a very,very short cycle so far. Even if gold went up nominally, its buying power against other commodities and currencies like the euro was mediocre until after the crash.
Gold was a bad investment for decades if you consider oil, silver, copper and lumber- not to mention stocks.
Now, gold is breaking out as a superior measure of storage. That started only since 2009. When the dollar and gold turned up together in Feb 2009 thats when the real price started moving up.
Nominal price dumping is a mirage by the COMEX- just try and buy those gold coins at spot
Hell of an echo in here....
Hell of an echo in here....
The only bubble is in trust in institutions. Gold is just running off of that.
Nominal value of gold is confused by paper futures and counterfeiting gold paper so JPM can bail its short position.
The real price of gold is still on a very,very short cycle so far. Even if gold went up nominally, its buying power against other commodities and currencies like the euro was mediocre until after the crash.
Gold was a bad investment for decades if you consider oil, silver, copper and lumber- not to mention stocks.
Now, gold is breaking out as a superior measure of storage. That started only since 2009. When the dollar and gold turned up together in Feb 2009 thats when the real price started moving up.
Nominal price dumping is a mirage by the COMEX- just try and buy those gold coins at spot
BTW... Clifton looks very interesting, thanks for the tip
f technicals. Technicals work until they don't. GS are making clowns of themselves and they draw the best technical minds money can buy. You want to predict the future? There
is no single method or model to use. Back-testing against -20,-30,-50 year spans sounds good.
Back-checking people's predictions is a pretty good indicator too. Pull up some of their analysis from 2002, 2008 and 2010 would be a good start.
Other than JPM capture of the White House, what else changed from 12/30/2010 to 1/3/2011?
Jeez. Focus on the big wheels, not the little ones. Don't spend rent and food money on long investments of any kind.
++
while in agreement, i also believe it's more subtle than that:
by definition, technicals are a simple visual study of real behavior that's historically driven by big players who could afford to analyze the fundamentals, and followed by the small retail traders who parasitically (not in a bad sense) track the big players' actions. the early TA adopters could effectively use it because their response to the indicated behavior had a *minimal impact* on the overall trading environment.
with much (after-the-fact) bragging and success, and 300 books at amazon, enough folks have chased the TA bandwagon to not-only change the dynamic of their own market, but also to enable the big players to capitalize on their religion! i would assert that any big player out there (Goldman, FRB, JPM, etc.) can move strategic parts of the market most anywhere they want for short periods - so as to create a 'tea-cup' or 'head-and-shoulders' at will.
but any silly STOP LOSS order doesn't care why it was triggered, or how much of a cascading reaction all those clustered trailing triggers might cause, they just go off and the market momentum is self-fullfilled - all by a downward nudge from pimco.
if we could, who here *wouldn't* nudge a stock/fund/commodity down just enough to trigger all those magical IB/E-trade/Scott-trade auto-trailing stops and dump the price right before getting in. on a low volume day, you could put a million in and save yourself 20mm on your buy.
the tourists of the quaint whaling-town have turned it into a tourist town - complete with a hard-rock-cafe and 7-11. lots-o-brochures, but no more whales. heh.
as you indicate, they'll let you win to keep you in the game. perhaps they'll even let you play with some leverage... until they can clean you and your savings out.
it's not a bad thing to play - but best we know the *real* game/odds before we bet...
Oh, and Cecilia, since no one is helping you, here you go:
http://www.apmex.com/Category/157/Mexican_Gold_Pesos.aspx
Remember, BTFD and have fun
Cecilia should just open his safe and take his gold off his manos blancos. "Gracias, Senor MHFT!"
Loving the silver dip. Like Christmas....
Thousands of years ago, Jamie Dimond's predecessor at what would become JPM was short sea shells which in those days was used as money. Fortunately, some Bedouin was out digging in the dessert and discovered a bright, shiny metal that he took to the local marketplace and discovered that he could trade it for food. Soon, sea shells were worthless, gold became money and JPM was saved. This time, it will take cold fusion or some such to replace gold as money. So, JPM is basically effed.
his fiction is getting tiresome - where was this article while gold was at 1400? rearview mirror reality
really?? cleaning lady with the gold pesos? must be a real hoot down at the cigar shop buddy
the cleaning lady comment is something else. there's a raging fire, this woman asks which way to not get burned....
at some point EVERYONE leaves a burning building or dies....
so we mock the cleaning lady for looking for the doors when she smells smoke?
The cleaning lady probably is heir to a culture where silver and gold are venerated as a store of wealth. When my POS neighbor who has just bought a new Jaguar asks I'll be very afraid. No, wait, I'll sell him mine!
that's my line too. when the professional-tier folks at my workplaces start asking... i'll "help 'em out"
gold is (PMs are) simple, and often 'simple' is buried deeply under scams-o-plenty - JPMs and otherwise.
when the cleaning lady is worried enough to explicitly act upon her core values, there's sign for concern, but not because it's a sign of a bubble as per the dot.com play. this is different: fear, not cocktail-party greed.
many 'retired' ZH participants seem to be sticking their noses back in the fray here lately. not sure why, but i think it's the same force driving the cleaning lady.
MHFT may be right about the dip, but is also right about the trend. if one wants to play the optimization game, his advice may ring true. however, i'm keeping my seat in the lifeboat.
The "simple" fraud that has been implanted in people's heads is that gold is a ponzi and that only those that hold it already are interested in others buying. Meanwhile the paper ponzi, that is so ubiquitous it's staggering, eludes their comprehension even when it is explained to them that their paper "wealth" is being created on a whim and that their purchasing power is being destroyed as the more they hold the more is created in a never-ending avalanche.
I agree with Commander C above, MHFT is talking short term trading for heavens sakes; he's still bullish long term. Can't any of the gold Nazis over here take a little nuance? An afternoon nap? Some short-term irony?
I'm in. I mean, I'm out of longing gold for the time being.
This dollar/paper rise may continue through the 2012 election, or should I say re-election of The One, then I'm betting gold will blast off again, this time to Jupiter and beyond.
+100% - It's unfortunate that ZH'ers tend to react to anything disrespectful of gold much like the punk on the corner does if you insult his squeeze. Take a breath and distinguish between the tactical and the strategic. This commentary has a point, debate the validity of it but don't get your panties in such a twist.
Yeah... He's "short term bearish" with no entry/exit/stop or other conditions on that 'short gold trade'.
WTF!? Totally fucking useless drivel.
I got the early preach. I buy physical. Not interested in the paper play, short term or long term. I am an alchemist. Yesterday I turned worthless paper into gold.
A. the h&s has played out
B. you're nuts if you think inflation isn't going to be insane
No mention of CUTTING spending from bammy last night
I love lower prices.
Let's be real clear people, gold is a steal at ANY PRICE!
You dollar cost averaged Pets.com.
Did it occur to you today to dollar cost average something real?
Support seems to be at 1325 now.
If it doesn't close below that in the next few days I'm spending what little money I have left on physical PMs.
Zig or zag, zig or zag?
I think I'll zag and invest in real gold: honey.
When you've had your fill of gold, come see me about a bee.
MHFT is talking about traders (short-term outlook) here. He acquieses to the long-term implication of holding PMs. If you are a trader, then listen and short the paper facade at your own risk. If not, then listen and BTFD.
here's the gold/silver options expiry schedule.
http://1.bp.blogspot.com/_H2DePAZe2gA/TS9z6Ej0AhI/AAAAAAAAPlE/lxVZ6LJHJL...
I don't understand why people continually get excited about these short term gold movements at end of every month. Haven't they learned yet that's options expiry, and more often than not metals take a dive? Month after month, year after year. Of course, when your investment horizon is a couple of days, it's easy to lose sight of the forest.
funny, isn't it -- the expiry happens to be TODAY.
and JPM still hasn't managed the 1300 mark.
calendar says Fri
http://www.heritagewestfutures.com/downloads/futures-options-calendar.pdf
Where do you get 1/28??? You sure you aren't misreading last month's 12/28?
Thanks for the commentary
Now that you have left the canoe it feels lighter already. It is well known that when you are floating on the sea in a boat trying to survive you have to sacrifice a few to the sharks to survive.
The fact that the technical guys don't see the other side of the story is exactly why we're in the trade.
The chinese NEVER tell their opposition what they are doing, Sun TZU man jesus. Ask your dumbass techncial guys where the SUNTZU oscillator is in their analysis? (HUH? THEY SAY!) The technical guys are being fed a line from teh banksters to get their orgs out of the trade.
Like all late comers you got whacked. You never mentioned gold till 2009 - The late entrance elmer fudds are cannon fodder, running around trying to trade something that isn;t tradeable, you buy it - you hold it, you give to your kids who give it to theirs and so one.
To all those fish that just got caught - you deserve what you get. You were brought up on ADHD trading strategy. You really didn't lose anything but an opportunity to buy more. But you won't - you'll be just in time to buy the APL trade at 500 bucks on it's way to 300
One needs a 300 year view not 3 weeks.
You just got tossed off the canoe, It goes to 1200 we buy more, It goes to 1100 we buy more, it goes to 1000 we buy more.
We do that, while you buy Apple for 500 bucks. Just a different view of life. We buy 5000 acres of land with a few ounces - you buy TV's
However owns the most ounces controls the world.
That my friend will be the NEW WORLD ORDER!
cheers
++++
It's all about the ounces.
The Bearing walks in the footsteps of Giants (FOFOA has kindly told us that a "Giant" is someone who owns a metric ton of physical gold). The Giants have already, through decades and maybe centuries, placed their bets. What have the Giants done (along with many of the Central Banks)?
Front-run everybody else in buying gold!
Look at the future prices that China, India, Russia and Brazil are going to have to pay for their gold...
I always get a bit of a chuckle when reading crap like this. We've had a four year torrent of advertisments to cash in while you can still reap the record price of the excess gold sitting in your jewellery box. Nice scam, and I've enjoyed being part of it.
Ever think about where that four year torrent of scrap has gone and the incredible damage it has done to the POG.
The torrent of srcap that was coming in has become a trickle. The UK's largest gold scrap dealer closed 32 of it's 150 outlets last summer. I guess that would mean that business was just toooooo good right.
Charts, bullshit. Take past data , plug it into your well educated keynesian claptrap and pretend you know the future.
I'll stick with the one measure of wealth that still has a measure of respectability.
A quick thanks to all of you out there who are doing your part to bring the EE down.
sudzee,
Thank you for sharing the news re less scrap coming in (at least in the UK).
Anyone have similar information re scrap supply drying up in the USA? That would be some REAL NEWS!
Don't ignore China, Russia, India, and despots everywhere etc. as gold buyers. They want physical metal and will clean up on this paper avalanche.
add to that the indefinite continuance of 'mark to skypie'/QE, mix in the fact that any M3 numbers are a 'best guess' that sways one way or another depending on the book of who is calculating the estimate, and we end up in a situation where there is no way of telling which of the 800 pound 'flation gorillas is winning the wrestling match.
(Theoretically, because of the unfathomable mass of toxic derivatives, it should be deflation on top (IMO) but because we can't possibly know with any certainty that the figures we are fed (no pun intended) for WORLDWIDE QE are actual, and not seriously understated, until the deathmatch is over and one or both of the 'flations run out of respawns, who effing knows?)
All of which is very bullish for the PM's IMHO.
Such crap. I wanna junk the piece.
What has fundamentally changed during the last two weeks? Has employment rebounded? Has the housing market turned? Has Ben quit printing money? Have world debt levels rebounded? Has inflation turned into deflation?
Anyone getting shaken out by a short term paper play or a consolidating correction is a fool and a trader. I have been adding to positions and I am hoping for a move down to the 1050-1100 and a retest. I was hoping for a January clearance and after X-mas sale. Sweet. Everyone is entitled to their opinion I suppose and some folks, like this author, should never drive faster than they can see. Dude has his limitations and knows them.