Gold Update – Why Didn’t Panic Send Gold Higher?

Question: As a lay person, it’s been my understanding that the price of gold will move up at times of panic. Could you pleas enlighten me as to why you recommended to short gold. Thanks! – Ben – Pasadena, CA

Answer: Many factors influence the price of gold, but panic is not one of them (at least not consistently). For example, in October 2008, the last time stocks crashed, gold lost as much as 27%. It’s ironic that many investors perceive gold to be a hedge against panic, yet gold fell hard during the two biggest panic months of our generation (October 2008 and March 2020).

Why did gold almost drop 15% in the last two weeks. 

Back in January, the Profit Radar Report stated that gold is currently in limbo, but will drop sooner or later. The question was not if, but when. The January 12, 2020 Profit Radar Report recommended to leg into a short position – short via gold futures, short SPDR Gold ETF (GLD) or ProShares UltraShort Gold (GLL) – and projected the eventuality (now or later – yellow lines) via the yellow lines:

The February 23 Profit Radar Report featured this chart and warned:

As the weekly chart shows, commercial hedgers (smart money) increased their short exposure to a new record. We’ll be looking for a low-risk entry to add to our existing short position. In fact, I’m tempted to add (or initiate) to our short exposure right now, but it’s prudent to allow for higher prices or wait for a close below 1,615.

Gold’ is likely in wave 3 of 5 or wave 5 of 5. In commodities, wave 5 is sometimes the ‘blow-off’ wave that extends higher then expected. The upper target for such an extension is in the low 1,700s, but it’s by no means required. RSI-2 is seriously over-bought, and the larger-scale bearish RSI-35 divergence remains in tact.

The red box highlighted price resistance for gold. The vertical dashed red lines outline what happened every time commercial hedgers (smart money), revved up their short exposure: Gold prices dropped, and they usually did so swiftly.

Ascertaining that gold prices were about to fall was the easy part. The question now is: How low can gold go?

Gold is likely working on a ‘sling shot’ decline, meaning that prices will jolt higher once they’ve pulled back enough. However, that pullback could be very severe. Short-term, support is around 1,450, and price could bounce from there, but ultimately I’d like to see prices drop even lower.

Continued updates, projections, buy/sell recommendations are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s evaluation of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF e-Newsletter to get actionable ETF trade ideas delivered for free.

COT Report: Large Gold Speculators are Giving up on Gold

It’s been a bad year for gold. In fact, it’s so bad that large gold speculators have dialed down their long gold futures exposure to the lowest level in five years. But it doesn’t look like they’ve thrown in the towel quite yet.

After an already dismal year, gold has lost another 11% in the last five weeks.

Is this the last washout sell off before a sustainable rally?

One clue is provided by the Commitment of Traders (COT) report, which tracks the long and short gold futures positions of various types of traders.

Investors basically get a peek at what the ‘smart money’ and ‘dumb money’ is doing.

The chart below plots the SPDR Gold Shares ETF (NYSEArca: GLD) against the long gold positions held by Non-commercial traders. Non-commercials are large speculators.

Even a brief glance at the chart shows that large speculators tend to find themselves on the wrong side of the trade (red and gray vertical lines).

The amount of long gold futures contracts owned by non-commercials has dropped to a five-year low.

The amount of gold tons held in the SPDR Gold ETF and iShares Gold Trust (NYSEArca: IAU) echoes the message of the above chart. The amount of gold held by gold ETFs GLD and IAU has shrunk over 30% since the beginning of the year.

Gold sentiment suggests that the worst of the decline is over. Unfortunately though, gold sentiment alone can be a haphazard indicator.

I always base my gold research on various types of indicators. Sentiment is one of them, technical analysis and seasonality another.

Quite frankly, technical analysis hasn’t produced any good buy/sell signals for gold, GLD, IAU or the UltraShort Gold ProShares (NYSEArca: GLL) recently.

However, gold has very much respected technical support and resistance. The gold chart below was previously published in the Profit Radar Report. The blue dots highlight how well technical support and resistance has worked recently (and for the entire year for that fact).

Near-term resistance is around 1,255. There’s no critical near-term support.

It appears to me that – with or without a bounce – a washout, ‘throw-in the towel’ type sell off is still missing.

We are now starting to gear up for the next long-term trade that may see a 200+ point move.

The long-term analysis for gold featured in the below article provides more details about the next 200+ gold trade.

Long-term Gold Analysis – When’s the Time to Buy Gold?

Simon Maierhofer is the publisher of the Profit Radar ReportThe Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. We are accountable for our work, because we track every recommendation (see track record below).

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

Gold’s Performance Tells Bernanke ‘QE is Not Infallible!’

The Federal Reserve has become somewhat of a financial super hero. Sure, it’s not acting in everyone’s best interest (unless you’re a big bank), but it has the air of invincibility. But invincibility is a fickle thing and gold is showing Bernanke how fast it can be lost.

When looking at various markets, I often search for investment themes or trades that seem too obvious. Why? If it’s too obvious, it’s obviously wrong.

One of the obvious beliefs today is the power of the Fed to control markets. It has become a foregone conclusion that Fed stimulus lifts stocks. The only concern is when the Federal Reserve will start withdrawing the punchbowl.

Two recent events show that central banks are not the all-powerful and infallible entities they’re cracked up to be:

1) Despite Japan’s historic stimulus, the Nikkei dropped 23% in eleven days. That’s not what “Abenomics” was supposed to look like.

2) Gold prices plummeted over 30% (including the worst meltdown in decades) at a time when central banks were buying the yellow metal at record pace.

Not as an immediate forecast, but as a general investment lesson we should review the sentiment leading up to gold’s all-time high. I will use media headlines to chronicle the ‘great gold rush’ of 2011.

ABC News: Gold Rush also A Boon for the Refinery Biz – August 10
Bloomberg: Gold Exceeds $1,800 as Investors Seek to Hold the ‘Ultimate Collateral’ – August 10
Forbes: Jim Rogers Says Gold Going Higher – August 10
Forbes: Gold at $1,870 is Being Seen as a Haven – August 22
TheStreet.com: Wait to Buy Gold at a Pull Back – August 22
Beacon Equity Research: Gold Price Poised to go Parabolic – August 22
MoneyControl.com: Gold in Portfolio is Mandatory – August 22
Barron’s: Is $5,000/ounce the New Target in Gold’s Run? – August 22
Chicago Times: The Gold Rush is On Again – August 26
BusinessWeek: Gold Not in a Bubble as Central Banks Print Cash, Faber – September 6
Reuters: Hard Hit Gold Bulls Not Yet Out For The Count – September 26

On August 26, 2011, the SPDR Gold ETF (GLD) becomes largest ETF with $77.9 billion in assets.

The reasons for gold to rally and continue rallying were seemingly endless:

  • Gold is a protection against inflation
  • Somehow gold is also viewed as protection against deflation
  • Gold is a safe haven during stock market meltdowns
  • Somehow gold also rallies when stocks rally
  • Central banks are buying gold, so should mom and pop
  • Gold is the only real collateral in a QE world

Despite all the bullish rationale for higher gold prices, there were even more compelling reasons to avoid the hype. Throughout August and September 2011, I warned subscribers multiple times about the eventual pain ahead:

August 10, 2011: “Gold is extremely stretched and trading significantly above its upper Bollinger Band. Any break in the armor could lead to a scary and unexpected decline.”

August 21, 2011: “I don’t know how much higher gold will spike, but I’m pretty sure it will ‘melt down’ faster than its melting up. Resistance is at 1,915 – 1,975.”

August 24, 2011: “Even though gold is the logical fear trade, price action is also dictated by liquidity. At some point investors will have to sell holdings to pay off debt or answer margin calls. Commonly the most profitable asset is sold first. Gold has been the best performing asset for a decade and a liquidity crunch could produce sellers en masse.”

The moral of the story is that even deeply entrenched convictions are eventually overthrown by ‘unexpected’ events that should have been expected simply because they were so unexpected.

PS: Remember Apple.