- (April 16th) Sharpest Drop in Gold Price Since Start Of Bull Market
- (April 15th) The Cyprus-ization Of Precious Metals
- (April 14th) Gold & Silver – Bullish Hopes In A Bear Market While Trend Wins
- (April 12th) Gold Price Drops Below $1,500 and €1,150
The gold price and silver price have been hit hard in the past 48 hours. Our “instinct” sends us looking for news for a possible explanation … probably most of us would be doing the same. What do the latest headlines tell us? Reuters gives an important economic update: “Major stock markets and the dollar fell on Wednesday after unexpectedly weak growth in U.S. private-sector jobs and services dented optimism about the world’s largest economy.”
Furthermore, an interesting summary was posted by colleague writer Jesse, and it perfectly reflects the relevant news that hit the wires over the past 48 hours.
The red line through all of this? The price trend of gold does not reflect the real financial and monetary risks. But what to make out of this disconnect? Honestly, it is difficult to say. We are not alone apparently. Some of the sources we genuinely trust (mostly because of their objectivity and experience) consistently report the same disconnect between “reality” and price evolutions (especially the decreasing gold price and the increasing stock market). Welcome to this artificial world. This is maybe not the type of answer readers were looking for, but “it is what is”. Readers that do not want to go into the details of the charts should jump to the last sentence of this article.
Zooming in on the gold charts, the hourly chart reveals a waterfall decline with extremely sharp drops. If there is one positive thing on this chart, then it certainly is the support EXACTLY at $1,550. Do you see how three attempts in a matter of minutes were blocked? We saw an usual high demand every time gold fell back in the range between $1,520 and $1,550 in the past year and a half. We reported past summer that smart money (some large investors) and Asians (mainly China) had put a floor below the gold price in that same range. It remains to be seen if the gold price will hold again at that level. For the time being, the overall trend is lower until the opposite is proven.
Because we prefer to remain realistic, we recommend preparing mentally for every type of scenario.
Does it mean gold is not attractive anymore? From a fundamental point of view, we firmly believe that the case for gold has never been stronger. Fundamentally, gold is money. The minority of Cypriots that were not impacted by the recent tragedy were the holders of physical metal(s). Whether this fact remains underexposed does not matter, it is a fact. In a world with unprecedented high levels of counterparty risk, an ailing banking system, an artificial economy driven by easy money, gold remains the place to be on the long run.
Which scenario’s could unfold in the near future? Everything is possible, as there are no reliable indicators anymore in this artificial world.
- With lower gold prices on the short run, it could be that a short to medium term cycle will unfold before the precious metals continue their way up again. The 2-year chart shows that we are at a critical juncture right now, both in gold and silver, so it can go either way.
- Another possible scenario is that the currency war, which is moving in waves throughout the world, leaves Japan to land in Europe or the US. The dollar seemed to be a safe haven lately, the euro surprisingly strong, and the Yen the worse of all currencies. However, we could be at the start of a cycle change.
- Another scenario is that the powers-to-be are so desperate to hide their ailing financial and monetary system, that they are orchestrating the takedown of precious metals in order to push hot money into cash and stocks. Conspiracy or not, it is plausible. Let’s not forget that Alan Greenspan openly said in 1998 “Central banks stand ready to lease gold in increasing quantities should the price of gold rise.”
Update (April 4th PM): As it appeared today, the Bank of Japan decided on a monstrous monetary easing program which will add additionally $ 1.4 trillion in their economy (source: Reuters). The aim is to get any possible sign of deflation out of their economy; inflation is their pronounced objective. The dollar and the euro are beneficiaries of this announcement, while the Yen logically loses in value today. Linking that news event to the gold price, we believe the large traders knew what was to come and they positioned themselves before the news hit the wires. No wonder gold was hit. Please remember that “the markets” have much more information than we have!
Bottom line: we do not know, nobody knows, only time will tell. We firmly believe however that the long term bullish trend remains intact. The following charts show that we are at critical support levels from a technical point of view.
As we wrote yesterday in The Great Disconnect Between Paper & Physical Silver, particularly silver is going through an extreme situation. Investors are piling up physical metal at an unprecedented level while the paper market (lead by JP Morgan) is pushing the hedge funds into massive short positions.
One final note in closing, Ted Butler writes in his latest report that today’s price smash was simply a repeat of what has happened time and again (see the article in the previous paragraph): commercials induced hedge funds into technical selling, while commercials have been buying at these lower prices.
In the midst of these uncertainties, we believe the right question to ask yourself as a precious metals owner is: which type of asset would you like to hold in this artificial world? Do you feel most comfortable holding stocks, bonds, cash, precious metals … given the counterparty risk of each asset?