I spent much of yesterday evening writing a long email about philosophical physics, and then the rest of it wrestling with the anti-matter that is gold behaviour. I found both cathartic, but there’s a lot more unanimity to be found among gold dealers, bugs, analysts and market traders now about the shiny stuff.
My own hypothesis – that gold is still due at least one more big fall while the manipulators and hedge funds get their post-Armageddin ducks in a row – was laid upon those who know better than I do, and I’m happy to say it got a 100% tick. And although I continue to believe that beyond the vaguely defined medium term, gold must do well, I think there are two excellent reasons why the opposite is going to happen before then.
The first is that the central banks are shelling out more and more with every week to keep the Gong Show on the road – especially in the eurozone – and this means they continue to need gold, in the medium term, to get cheaper and cheaper, balance sheets for the stuffing of. In turn, Ben the Bernanke’s balancing act with QE is causing the Reserve to keep flagging up withdrawal, and the more they do it, the more Xanax sales go through the roof on Wall Street. So the Fed still needs gold to look like an unreliably unattractive investment for anyone seeking a stock market exit.
The second is that – although one relies on such data less and less these days – the technicals here scream further readjustment downwards. Sentiment among buyers over the last 16 days presents a classic graph (especially in Sterling and euros) of support getting less enthusiastic and gradually fading away.
Equally, the 60-day chart shows a commodity testing a low, bobbling along unconvincingly, and as of now looking for a new one. As in, any time now.
“The miners’ ETF, GDX, has a very notable weighting of bearish puts in the July expiry, while the September expiry is even more so,” one US trader tells me, “the open interest in both these vehicles that move with gold futures underlying in some way, paint a bearish picture to this trader.”
Two weeks ago, gold was gyrating around in the $1380-90 apartment. It’s now on the floor below at $1350-70. Some time very soon, I expect to see it fall through $1330 and keep going down to the reception area.