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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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"everybody and his brother are in on the trade with a big fat long position" ~ really? what fucking garbage
I have talked to maybe 50 people about gold over the past 2-3 years I don't think one has bought any .
The Bearing has talked with approximately 25 people over the same time frame. Only 2 have any real position in physical gold (caveat: that I know of). These +/- 25 people are relatively wealthy (on average).
What's changed is the level of irrational enthusiasm multiplied by earnings season (or as Reggie Middleton referred to JPM's earnings, "so called earnings") and there is lingering new year optimism. It's a collective madness and Wall St. wants to relive 1997. If you can stand it, turn on CNBC, you'll hear nothing but "DOW 12,000 !!!". We should be thankful for the opportunity to buy gold at lower prices. My miners are taking it on the chin tho' - take it all in stride.
Irrational Enthusiasm = Revolt in Tunisia/Egypt/Algiers/Bangladesh
Right!!! We should have someone watch CNBC all day, though that may violate the eighth amendement and thats also how I think they torture al-qaeda suspects (please no more CNBC; ill tell u everything!),.. tangent sorry...someone should watch the channel to see how many times they say DOW 12,000. Their fanatics. But i still love erin burnett. How can u not? she's basically smart and so beautiful. It woul dbe great if she quit CNBC and said I cant stand this anymore i joined ZH.
Snap out of it!
But she's got me hypnotized! I'm 30; she's 34. Her and I could make things happen. Oh God, it's worked. CNBC is using Burnett to capture the hearts of young, single men. Please help me!
I just love these chartists who pontificate about "signs" in an obviously rigged market that is void of true price discovery. I wonder if he is just another gold basher hired by the EE to shake the weak leaves from the tree even as the demand from Asia and the obvious shortages are readily apparent. I don't see any lessening of the fundamentals; in fact the unrest around the world that seems to be growing is even more of a reason to own PMs; and of course backwardation is a real bitch for the banksters.
EXACTLY! Technical signals in a rigged market are as useful as an umbrella in a hurricane. The same fundamentals that have driven gold from $250/oz to $1300 are not just strengthening, they are accelerating.
The smart money is thanking JPM and HSBC for this most excellent buying opportunity.
My long-term commitment to gold, for one, is not wavering. I wrote, on September 3, 2006, after gold had corrected over 14% from $715 an ounce to $621 an ounce an article to refute all the stories in the media about the demise of gold, an article titled "Gold's Glitter is Genuine". More than four years ago, you can read my comments from that article: "I believe that we are poised to see one of the greatest bull runs of this asset of our lifetimes – a once in a lifetime opportunity to build considerable wealth leveraging this particular asset." I still stand by that comment today.
I support you and PMs wholeheartedly. The gold market in China is reported to be extremely tight. You may need to wait for 3 months to have your gold bars delivered by some of the dealers.
You know, it's kinda funny...
I've been listening to the pundits say the same thing for the last decade. They all sound like a Greek chorus predicting doom for anyone foolish enough to buy gold.
They said it at $275
They said it at $350
They said it at $400
They said it at $500
They said it at $650
They said it when gold took out its previous all-time high of $850
They said it at $1000
They said it at $1100
They said it at $1200
They said it at $1300
And now they're repeating their mantra at $1400
All the while, I've been consistently accumulating bullion... and I will continue to laugh all the way to the bank
But Gold is down and I for one like MHFT. I thin his advice is sound and he is saying gold is due for a short term correction and you may make money by shorting some ETFs and going long some inverse ETFs but that in the long term it's going up. He didnt say it's going back to 200 he said there's a chance at the most of going back to a 1000 and then going back up. It's a bet and a risk just like right now holding your positions in the wake of a 10 percent pullback may be a risk too. I think it's important to seperate your emotions from your positions and your thoughts. Though it's very hard. I tend to think gold has entered a bubble stage with many people getting in at the top and then the PTB short it to take out the sheep in order to get in on the dip. I have no postion other than in my virtual portfolio as I am no postion to by anything but slv which i think is a better buy than gold but maybe ive read the wizard of oz too many times. But you are right they did say it at 200 and said it at 1400 and Im wrong a lot. So, I dont know but I like reading his articles and thats what i love about ZH it gives some advice that maybe contrary to what people want to hear. This site is the best. I dont know what do you think? I'm not trying to trash you or gold; these are just some thoughts and i love the honest discussion of ideas amongst us ZHers.
@ Rick,
Yes, gold will go up and down. I do think that we are unlikely to see gold EVER below $1050. The famous "India Put" as someone here at ZH called it, in the days after India bought the 200 tonnes of IMF gold.
Upside for gold? Check out:
fofoa.blogspot.com
Yes DCRB and the next CB purchase, if they are "allowed" to purchase publicly (I don't see the IMF actively searching for buyers like the past several years), will signal the next support line.
Totally unrelated: what do you guys think of YHOO. Buy, sell, Hold?
They are the old guard with little new technology to offer people. Even their original model is gone as they use Google for their search. No kids want to use Yahoo as there are too many other fads to keep up with and their "parents" internet is not their internet. I got out of it after the MS mistake too. I'm surprised they are still around. I think the same will come of Facebook in the next few years. Internet stocks are the Davey Jones locker of investors.
I sold my stake in YHOO when they refused to be acquired by MSFT. Their business is shrinking and they don't seem to have any new ideas. Microsoft could still be interested in the company but they wouldn't pay anything near $30-$33/share that they were willing to pay last time.
reality here, hard reality. we have a corrupted market, we have a staggeringly corrupted major market player cornered.....and we have breathtakingly compromised "regulators" at the CTFC.
If they have to take firehoses to beat back the masses and keep them in equities and the dollar to protect their positions, they will do it.....
of course, we know that personally, none of these guys is going into the chaos without a boatload of gold/silver.
let's see....did the president of tunisia load his plane with paper dollars or gold? ........and what did the group fleeing egypt take? hmmmm, seems they left their USD behind...no room next to all the piles of gold.
more of us need to start speaking truth to power. write to every idiotic bloomberg reporter and confront them with the facts.....
write to all the politicians and say -- hey, i know, we're watching....
write to the breathtakingly, mindnumblingly corrupt head of the CTFC and tell him, we know what you're doing.
I'm surprised people still believe in the relevancy of head and shoulders. There was a very big one on the DJIA a few months ago... it ended by a Baskerville, as it goes in 90% of the cases nowadays.
The problem with "technical" trading is that everyone can do it and thus it's predictable to those eager to manipulate the trend followers.
Best use of head and shoulders is for dandruff.
EXCUSE ME, Gld is entirely paper, and can easily "weather the downturn"....moreover, it will allow the withdrawal of whatever few grams there are actually in the fund...by its custodian -- JPM...
who -- in managing this bear raid -- is now literally on the ropes vis a vis delivery on the Comex.
this is one of the major problems of playing only the technicals versus the actual hard physical market. you have no clue about what's really going on.
for those who would like to get a drift of just what is happening in actual real hard gold, turn to harvey organ's blog.
and walk away realizing that the last thing you should be doing now is selling any hard stuff. Paper, sure, hard stuff you have in your hands....hell no.
i should add that whatever tiny atom of respect or credibility remained for the "regulators" at the CTFC has entirely disappeared among the hardcore gold traders. Not only have they sat by and watched this Paper avalanche destroy the market KNOWING that the paper sellers have no hope of ever delivering the actual commodity, they have aided and abetted the situation.
At some point, these people should be prosecuted for criminal malfeasance. Not that it will ever happen. Nope. They will get cushy offices at GS and JPM when this is over.
so, the premise is that physical au will decouple from its ugly paper sister at some dystopian inflection point in the future?
the future better be hella spooky to achieve that. There's not a regulatory cloud on the horizon....
and by the way, i have every confidence that the price will be engineered down with the help of the CTFC to the 1300 level, if not lower, in an effort to get JPM out of its catastrophic short position. Of course, there will be no metal there -- actual hard metal -- there for anyone to buy, but....
JPM will have achieved its goal. So its all good, right?
In other words, this is a worthless fucking article.
GLD is a total fraud. Get with the program Madhedgefundtrader.
Bull markets want to take as few people along for the ride as possible - IGNORE THE NOISE!
Yeah, there may be more of a pullback.
But what sort of a fucking idiot recommends shorting something that's been in a 10 year bull market, shows no sign of stopping, especially when he also thinks it's going up long term?!
I think TD puts this moron's stuff up to give us a taste of the 'mainstream'.
No, I think you are the moron who should take extra reading comprehension classes.
Let's start now. Re-read the article and then tell me why you are a moron.
Sorry Al but LowPro is exactly right. You can hardly take the advice of a technical hedge fund guy in a case like this. It's these technical traders that the cartel is successful in shaking out when they manipulate gold and silver downwards because they know that's how the technicians think.
It has nothing to do with reading comprehension. It's more about incorrect prognostication and misreading of global fundamentals.
Go back and read this again 8 months from now and see who the real morons are!
This is now very bullish for gold. All the paper promises are exiting to claim their physical
I disagree with almost every premise written into this article.
@ Turd,
I am not a trader of gold. I am a holder (and have finished my physical buying) of gold. I now have enough (10% in precious metals most in gold).
I really enjoy both your blog and your comments here at ZH. Your comments on EE monkey business are funny and seem spot on. Stick around!
Spot GLD could come off 200 points from current levels if people start exiting fast but there is no reason to think you will be getting GLD from $600/oz. I think $1000 is unlikely and that the 1080-1100 level is the potential bottom in this move. More likely that 1280 and 1220 will mark are rangey mess for a few months while other macro things line up another reason for global panic.
Sell physical PMs? Given the transaction costs just stfu and hold it. If you hold paper, head for the exists between 1340 and 1350 and look to get back in further down.
Will be nice when one day people start differentiating between short term paper trade opportunities and longer term armageddon physical investment.