PM End of Week Market Commentary - 7/17/2015

davefairtex
By davefairtex on Sat, Jul 18, 2015 - 1:01pm

On Friday, gold dropped -11.50 to 1132.30 on moderately heavy volume, dropping briefly below the 1130 low before rebounding slightly.  Silver fell -0.13, continuing its slow decline targeted on retesting the low set two weeks prior.

While the buck rose on Friday and that seldom helps gold, it looked to me more like the shorts were trying to push gold below support, so they could run the stops and collect some quick profits.  They couldn't quite make that happen, as the brief drop to 1129.60 wasn't deep enough to trip the long stops that were probably set a bit further down, but the stage is set for a second attempt early next week.

On the week, gold fell -30.70 [-2.64%], silver fell -0.76 [-4.88%], GDX dropped -7.94% and GDXJ lost -5.30%.  Platinum was down -3.93%, while palladium dropped -5.80%.  It was really bad week for PM.

There was just not any good news this week for gold - it dropped all five days, and ended up breaking briefly below the previous low.  That's a bad sign, as the rally off the low was practically nonexistent.  Unless there are massive bids lying underneath 1130, it will not take much for a well-heeled short to push prices lower come Monday morning in Asia.  Whether buyers will appear at COMEX after all those long stops get triggered - that's the question that remains unanswered.  If that happens, we could see a nice rally develop as the new shorts are whipsawed.  If COMEX buyers don't appear, and as the rest of the commodity complex also appears to be pointing lower, breaking 1130 support will probably lead to a lot of selling.

Silver also endured 5 straight days of selling, but it avoided making a new low - simply because the previous low was so dramatically lower it didn't quite make it down that far.  I expect silver too will test its 14.62 low this week, and most likely it will fail.  If buyers appear after the failure, we could see a nice rally.  If not...we're probably off to test the 14.15 low.  How the other commodities perform will likely influence what happens to silver.  If they all sell off, its likely silver will follow.

The USD

The dollar rose +1.82 [+1.89%] to 97.99 on the week, moving higher on 4 out of 5 days.  Dollar strength alternated between concerns about Greece and the market's assessment that a Fed rate rise is really going to happen as a result of higher inflation numbers and continued positive payroll reports.  Manufacturing remains weak because of the strong dollar, but since manufacturing is only 8.6% of US payrolls, and payrolls drive most everything, it isn't decisive.

You may well say to yourself, "the Fed will never raise rates" - but my sense is, the market believes they will, and that belief pushes the dollar higher.  And of course, dollar strength right now ends up pushing commodities (and PM) lower.

Miners

Senior miners sold off quite hard this week, dropping to new lows and ending Friday with hints of a capitulation, dropping to new lows last seen in October 2008.  Miners haven't quite broken that 2008 low, but it is not so very far away.   Here's a monthly chart to give you a sense.  Gold isn't the most unloved asset class in the world - that status is reserved for the gold mining shares.  Miners have had a 77% drop since the peak back in 2011.

Junior miners also went through a minor capitulation this week, but the juniors have managed to avoid breaking below the March lows.  Junior miners are still outperforming the seniors, which tells me that someone is out there accumulating junior miners on the way down.

US Equities/SPX

The equity market launched this week, perhaps impelled by the Greeks accepting the unconditional surrender terms of a new "bailout."  SPX climbed +50.02 [+2.41%] to 2126.64, and is closing on the 2135 all time high set back in May.

VIX fell -4.88 to 11.95.  Put options on SPX tend to be a good deal when the VIX drops below 12.  That said, my models aren't showing a peak here for SPX.  In fact, they show a (bullish) rebound from last week, so I'd be cautious going short.  My guess: we may have a dip this week, but I'm guessing it will be bought, and we'll see a new all time high relatively soon.  The bounce is quite strong.

Gold in Other Currencies

Gold fell in every currency except the Euro - where it has been moving more or less sideways for the past seven weeks.  In XDR, it was off $16.  It appears that gold has been falling in most currenciesfor the past month or so.

Rates & Commodities

Bonds (TLT) rose +2.30%, rallying four days out of the past five.  Bond buyers have pushed TLT back above its 50 MA.  It is interesting bonds are attracting money while equities rise; I'm not sure what to make of it.

Junk bonds (JNK) sold off a little on the week, dropping -0.16%.  No signal right now from JNK.

The CRB (commodity index) dropped -1.70%, mirroring the +1.89% rise in the dollar.  Overall commodity weakness appears to be a currency effect.

WTIC continued dropping this week, losing -2.04 [-3.86%] to 50.78.  The oil correction continues apace, which has continued to hurt oil equities both E&P as well as services.  My models are conflicted, with one projecting a low in oil, while another suggests WTIC has another $5 to drop before it hits bottom.  The one predicting a bounce has been early in the past, so I'm cautious.

How much more will oil fall on the signing of the Iran nuclear deal that happened on Friday after market close?  Is this news already baked into the cake?  We might have a spike lower on Monday that gets bought.

Physical Supply Indicators

* Shanghai premiums fell to +3.82 over COMEX.

* The GLD ETF lost -11.63 tons, with 696.25 tons remaining.

* GC futures are not in backwardation, with the current two front-month spread at +0.60.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on July 17th) of 1132.60 and silver 14.85:

 PHYS 9.32 -0.63% to NAV [down]
 PSLV 5.84 +1.90% to NAV [down]
 CEF 10.88 -9.92% to NAV [down]
 GTU 39.36 -5.57% to NAV [down]

ETF premiums were all lower.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no significant premium for gold, but in silver the premium ranges from 10-25 cents in Toronto, Singapore, and Zurich.

Futures Positioning

The COT report covered trading through July 14th, when gold closed at 1153.50 and silver 15.29.

The gold commercials increased their short exposure by 7.3k contracts while at the same time growing their long position by +11.4k contracts.  The commercial net (long - short) position looks bullish in that the net position spikes up when bottoms are near, but these things can sometimes take a while to play out.  We could easily see a further drop in gold to mark the actual low and this would still be a valid signal.  Managed money remains very short, unchanged over last week, another sign of a low.

In silver too the commercials remain at a relatively low short position, which is bullish, while Managed Money has covered some of their shorts but remains overall very heavily short.  These conditions have been in place for several weeks, but silver has yet to respond.  That's why I tend to say that the COT reports are not necessarily good timing indicators, although historically they have tended to work pretty well.

Moving Average Trends [9 EMA, 50 MA, 200 MA]

Everything is a sea of red.  No good news anywhere in the moving averages.  However looking at the 52 week change, you can see that gold has done the best of all the PM components.  During those 52 weeks, USD has climbed 21%, from 80.57 to its current level of 97.98.  How much of gold's drop is currency?  As it turns out - all of it.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver COMEX.Silver -0.96% -29.72% falling falling falling falling ema9 on 2015-07-13 2015-07-17
Gold COMEX.Gold -1.05% -14.05% falling falling falling falling ema9 on 2015-06-30 2015-07-17
Platinum COMEX.Platinum -1.10% -33.40% falling falling falling falling ema9 on 2015-07-06 2015-07-17
Junior Miners GDXJ -4.21% -52.13% falling falling falling falling ema9 on 2015-06-22 2015-07-17
Senior Miners GDX -4.46% -42.45% falling falling falling falling ema9 on 2015-06-19 2015-07-17
Silver Miners SIL -4.64% -48.11% falling falling falling falling ma50 on 2015-06-23 2015-07-17

Summary

Gold, silver, copper, platinum, palladium, miners, oil - all of the commodities I track fell this week.  Gold actually held up better than most.  However, gold also made a new 5-year low, which suggests to me that there is danger ahead.  This tells me that, more likely than not, gold will break lower before it rallies significantly.

This week, the gold/silver ratio broke out to new highs, rising +1.76 to 76.46; once again, we have to go back to the 2008 crash to find similar levels for the gold/silver ratio; that's bearish.  The GDX:$GOLD ratio continued to collapse, making a new low, which is bearish.  The GDXJ:GDX ratio resumed climbing this week, which is the only bullish note amongst all the ratios I watch.  Someone continues to buy those juniors.

The COT reports show a bullish positioning for gold, and a bullish positioning for silver - managed money is short, while the commercials have mostly covered.  The snap-back should be impressive, but we could easily make new lows before it happens.

Physical demand is at best neutral; in the west, ETF premiums were lower, GLD tonnage fell slightly, no backwardation at COMEX, and premiums in Shanghai are only mildly positive.

Commodities are all looking bad.  Dollar is rising, which is the likely cause for many of them.  Oil is continuing to correct and has yet to find its low.  None of this is good for PM.

No catalyst yet for gold, or for silver, or for most of the commodity complex.  Physical buying does not trump COMEX, and Shanghai doesn't look particularly excited to buy at the moment.  Right now is a seasonally weak period for gold, improving somewhat in August.  Likely, new lows are ahead.  I hate to be a Gloomy Gus, but that's what I see.

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24 Comments

AaronMcKeon's picture
AaronMcKeon
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China's "Official" Gold Increase

Hey Dave - I was wondering what, if any, significance you might assign to China's official announcement of the 60% increase in their gold reserves.

http://www.rt.com/business/310140-china-gold-reserves-russia/

Arthur Robey's picture
Arthur Robey
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Trying to figure this out.

Bad money is being pumped into the stockmarket. Causing price inflation.

But there is no Money for the 99% to meet their non discretionary expenses. They need the liquid cash, making the folding stuff more valuable than PMs?

How big a player is the little guy in aggregate?

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Nobody believes the China Gold Reserve Numbers
bostonJumper wrote:

Hey Dave - I was wondering what, if any, significance you might assign to China's official announcement of the 60% increase in their gold reserves. http://www.rt.com/business/310140-china-gold-reserves-russia/

I was taken aback by how ridiculously low the China gold numbers were.  Of course, China is bullshiating on all their economic and monetary numbers so trust is low to begin with....but it turns out I'm not the only one who is skeptical:

China finally says how much gold it has, but nobody believes it

Jul 17, 2015

The last time China reported official figures was in April 2009. Back then, the figure stood at 1,054 metric tons, according to Ross Norman, chief executive officer at Sharps Pixley.

The latest total is about half what the market thought it was. The market was generally expecting a total of well over 3,000 metric tons, according to Brien Lundin, editor of Gold Newsletter.

“There is much evidence that [China’s] holdings are actually at those higher levels, which makes one wonder why they would feel compelled to understate the total now,” he said.

Ken Ford, president of Warwick Valley Financial Advisors, said China has been pressing to be included in the International Monetary Fund’s Special Drawing Rights, or SDR, currency basket. “So they want to show that the have accumulated enough, but do not want to show their whole hand because it may spook the markets,” he said.

China has undertaken economic reforms aimed at persuading the IMF to include the yuan in the basket, which would accelerate its acceptance as a reserve currency.Read: China’s yuan has ‘Long March’ to reserve-currency status

Or, China could be “lowballing” their reserves to maintain confidence in its substantial U.S. dollar holdings, according to Mark O’Byrne, research director at GoldCore in Dublin.

But lifting the yuan’s potential as a global reserve currency is what’s behind China’s move to lift the shroud of mystery surrounding its hoard of gold.

“China has ambitions to create a global reserve currency to challenge the hegemony of the U.S. dollar DXY, +0.30% and fill the void created by the declining holdings by central banks of the euro EURUSD, -0.4138% ” Norman said.

And the Chinese “clearly recognize gold’s role in providing credibility and status to what would be a new currency on the international stage,” he said.

I think that's plausible...China is playing a game designed to plug the yuan into the global reserve currency regime and gold has a role in that....therefore the reporting of gold reserves is something of an optical stunt rather than a simple case of being open and honest.

Further, if China seeks to accumulate more gold, then lowballing the official figure is the right move...keeps gold weak and doesn't tip your hand.

davefairtex's picture
davefairtex
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china gold

My guess is pretty much aligned with everyone else's: disbelief.  Figure seems way too low.  Various chinese commentators were talking about 5% of reserves being in gold.  Current chinese reserves: 3.74 trillion (USD).  At current (low) prices, that 5% rating would come to 4900 tons of gold.

They've certainly had the time to accumulate that much, and enough gold has certainly flowed into the country to account for that.

Why would they understate?  As Chris said, they probably want to accumulate more - at least as much as the US anyway, and if they're going to do that, why give away information that might spike the price?

My conclusion from this is, they're not done accumulating.

 

KugsCheese's picture
KugsCheese
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Chine Gold, History Repeating
davefairtex wrote:

My guess is pretty much aligned with everyone else's: disbelief.  Figure seems way too low.  Various chinese commentators were talking about 5% of reserves being in gold.  Current chinese reserves: 3.74 trillion (USD).  At current (low) prices, that 5% rating would come to 4900 tons of gold.

They've certainly had the time to accumulate that much, and enough gold has certainly flowed into the country to account for that.

Why would they understate?  As Chris said, they probably want to accumulate more - at least as much as the US anyway, and if they're going to do that, why give away information that might spike the price?

My conclusion from this is, they're not done accumulating.

 

If in this round China is America, then China could do an FDR and its holdings would spike.

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KugsCheese
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Re: Nobody believes the China Gold Reserve Numbers

If Jim Rickards is correct about China, then China would be working with the IMF.  That implies China would not reveal true gold holdings yet since it would induce gold bugs to spike price.   Therefore there is good chance it is all managed for now.  However, Nature doesn't always play that game for long (over 40 years now).

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KugsCheese
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RE: Trying to figure this out.
Arthur Robey wrote:

Bad money is being pumped into the stockmarket. Causing price inflation.

But there is no Money for the 99% to meet their non discretionary expenses. They need the liquid cash, making the folding stuff more valuable than PMs?

How big a player is the little guy in aggregate?

 

Anecdotally, the barter economy is picking up.  Also, as cash is extracted into black market TPTB lose track of it (cannot calculate velocity, danger danger). 

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davefairtex
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fun greek poll numbers

From Spiegel via Automatic Earth:

http://www.spiegel.de/international/europe/greek-prime-minister-tsipras-shows-greeks-he-can-save-them-a-1044265.html

Despite all the broken promises, despite the “no” vote on the austerity diktat that Tsipras would transform into a “yes” vote only a few days later, like some magician pulling a rabbit out of the hat, surveys showed 70% of Greeks supporting the deal, which they consider to be “necessary and without alternative.” 68% say they would vote for Tsipras again if there were new elections. Polls also suggest he would be able to govern without a coalition partner. Those are astonishing figures for a prime minister under whose watch the banks had to be shuttered because they were threatened with collapse. Under whom capital controls had to be introduced, limiting daily withdrawals by Greeks to €60.

So to summarize:

  • 61% were against the initial agreement
  • 70% now support the current, and worse deal
  • 68% would vote for Tsipras if there was an election
  • Syriza would win more than 50% of the vote

If the goal of the EU was to hose Syriza, it has backfired.

Armstrong has said in the past, placing pressure on a country does not make the people repudiate the leader, if it is clear where the pressure is coming from.

US sanctions on Russia served to support Putin's popularity in Russia.

Likewise, Troika pressure on Greece has brought Tsipras more support, not less.  I suspect the Greeks see Tsipras as a true representative of Greece - working very hard to find a reasonable deal, and then doing what he must once it became clear the EU was quite willing - perhaps even eager to engage in fiscal punishment for reasons of their own.

One might ask, why on earth would one live in such a disfunctional relationship?  That's a harder question to answer.  Since I'm not Greek and I haven't lived through the last 30 years of Greek history, I can't very well sit in judgement.

 

Adam Taggart's picture
Adam Taggart
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$50/oz freefall in overnight gold futures

Massive sell-off in gold in the Asian markets right now. A large order immediately dropped gold by $50/oz. Price is trying to recover, only down half that at present:

(chart from finviz)

Many analysts/chartists have been predicting that the gold price needs a capitulation "wash out" downspike in order to put in a hard bottom before the secular trend can reverse from bearish to bullish.

Really hoping that's what we're seeing here. Would hate to have to keep reporting non-sensical developments like this...

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davefairtex
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gold assault

I'm surprised at how far down it went, but not that the assault took place.  We got hints on Friday that there was danger ahead after the rebound off 1130 was almost nonexistent.  Shorts really just had to give this a try.

Now that the last long stops have been removed, we have a chance at making a low here.  I see the shorts tried to push the price even lower six minutes after the large spike down, but that failed.  If the buyers show up to buy the dip, this could turn out to be good news.

It all depends on who (at the COMEX) wants to buy gold here around 1100.

Armstrong thinks gold will bottom out at $1000 - or at least, that's what he hinted at the other day.

I'm not sure we head down there just yet.  I think we have a bounce coming relatively soon.

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koigrl
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elevator stomach.

What do you think gold will open at in london? i'm looking for dry powder. wink

Jim H's picture
Jim H
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Here comes the run on phys...

At 10:59 I received an email from Gainesville coins advertising some items I could buy on this new dip... they included random year Canada Gold Maples, and random year Pt Maples.  When I actually looked at the email and clicked on each just now (11:20) both were OUT OF STOCK already.  Ha ha ha ha ha ha..... this is getting just downright silly.  

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Nate
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Armstrong
davefairtex wrote:

Armstrong thinks gold will bottom out at $1000 - or at least, that's what he hinted at the other day.

From Armstrong:

http://www.armstrongeconomics.com/archives/35149

Has anyone noticed the spreads on physical silver?

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davefairtex
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bullion vault

Bullion vault has 40 cent spreads on silver in singapore and toronto, but not in zurich and london.

So far the gold rebound: "not nearly enough".  If this is all the buying we can muster by end of day, this will probably end up being a breakdown rather than a low.

Silver looks somewhat better, but its not enough either, at least not yet.

I shudder to think what happens to the miners when the market opens in an hour.

Of course, if the miners get bought (after a first-hour selloff), that is a sign too.

Last point: there is no need to rush out and try to "buy the absolute low" in times like these.  If we drop to $1000, and then the market reverses, you will have thanked yourself for waiting.  Likewise, if we rebound today, and re-cross $1130, the $20 difference in price you will have missed out on won't be noticeable.

Basically I'm saying, wait for the momentum to noticeably reverse before buying the dip.  Let someone else be the hero and try to pick the low.

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janb
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bullion vault

Hi Dave,  Many thanks to you for that practical and specific advice. I always look for your experienced insights at times like this.   Jan

davefairtex's picture
davefairtex
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silver could be the "tell" today

Lest we be caught up in the gold götterdämmerung, silver is actually showing some pretty good support, after dropping sympathetically with gold's crash through 1130 earlier today in Asia.

If silver can close above 14.83, we have a decent possibility of marking a low in silver.

I think a lot of what is going on with gold right now is some pretty significant fear-based selling.  Once that clears up, I'm guessing we'll see a bounce.

And if silver marks a low, it will most likely drag gold right up along with it.

I do NOT think gold is going to 1000 on this particular leg, based on what I see today.  I think its much more likely we'll bounce back up through 1130.  It may take a few days to play out, however.

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Jim H
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Miners to buy for the brave at heart

Wanted to get any opinions on miners today.  Hard to buy when there is blood in the streets... but at some point there will be a bottom.  I am interested in GORO today... 52 week low, profitable, and with a 5% dividend that appears reasonably sustainable (vs. EPS).  A tiny $100M market cap.  US and Mexico.  Gold and Silver. 

KugsCheese's picture
KugsCheese
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Jim H wrote: Wanted to get
Jim H wrote:

Wanted to get any opinions on miners today.  Hard to buy when there is blood in the streets... but at some point there will be a bottom.  I am interested in GORO today... 52 week low, profitable, and with a 5% dividend that appears reasonably sustainable (vs. EPS).  A tiny $100M market cap.  US and Mexico.  Gold and Silver. 

GDXJ TTM P/E is still ~12.   I consider fair value 8.  Once it hits 6 I will buy GDXJ probably.  Many good industrials went to 5-6 in 2009.

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thc0655
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Texas Precious Metals

I got this email from Texas Precious Metals this morning.  I like them for several reasons, but one is because since they only sell what they have in stock, I can get an idea about shortages and availability.

Gold, silver and platinum fell to new 5-year lows on Sunday night before staging a rally. Gold dropped as low as $1072, silver to $14.54, and platinum to $946. All three precious metals quickly rallied, and have settled higher. 



We are experiencing high order volume. Presently, we are sold out of the following products:



1 oz Silver Bars

1 oz Generic Buffalo Rounds

Junk Silver Bags

Austrian Philharmonic Monster Boxes



We have 30,000 Silver Eagles remaining in stock, and we will not receive more supply until August 3rd. We have 18,000 Texas Silver Rounds in stock. New stock will arrive July 27th. Both products will be sold on a first come, first serve basis.



Sincerely,

Jason Kaspar

CEO, Texas Precious Metals

As I expected their premium on silver Eagles has gone up with the dwindling supply.  Last week it was $3.03/oz (when buying 500 or more).  Today it is $3.24.  So the premium increase has more than compensated for the drop in spot last week when I was considering buying.  I've seen that before so when I decided not to buy last week I knew it meant I would be waiting a while until the supply was built back up and the premium came back down.  So, I'm still waiting.

However, now gold is so low I'm considering withdrawing some gold Eagles from my IRA.  Paying the 28% tax now seems like a bargain compared to paying 15-20% after I'm retired and the price has quadrupled or whatever.

davefairtex's picture
davefairtex
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miner capitulation

Boy, I leave for a few hours and things just collapse!

Any hints of a rebound from silver today - gone.  We likely see lower prices tomorrow for the miners, although once capitulation is finished, the bounce back should be very nice.  We'll have a better sense after tomorrow's first hour. 

At some point buyers will show up because the deals are too good to pass up - but when will that be?

NEM was down 12% today.  That's one of the biggest gold miners in the world!  Wait until those shorts decide to cover and put a bottom on this thing before jumping in.

Really low prices can get even lower if you have a bunch of people capitulating over the next few days...or weeks...

 

AaronMcKeon's picture
AaronMcKeon
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China Selling?

Another RT article, this one reporting it was China that dumped the gold. I would think if they were selling that it would only make sense if it were into her own domestic marketplace - selling sends price down, gold still stays within China, and they use low prices to import cheaper gold?

http://www.rt.com/business/310268-gold-crashes-as-china-dumps/

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Adam Taggart
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Sea of red

17 of the past 21 trading days (that's 81%) for gold have been down days. Several of those have been "very down" days...

Over that period gold has lost $100/oz.

I agree with Dave. Wait for the trend to demonstrably reverse before bottom-fishing. The trend right now is not in your favor.

Somebody with clout (central banks, institutional shorts, algos, hedgies, China -- whoever) has wanted gold to go lower. Better not to buy in big until their boot is removed from gold's throat.

(This does not apply to dollar-cost-averaging. This is a great time to continue with that practice, or start it if you haven't already)

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AaronMcKeon
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Re: Sea of Red

Seems very prudent advice. I've been dollar averaging in over the past year (what a year) and sometimes it's been hard to remain disciplined. Despite times like this though I still sleep better at night knowing I've got something real tucked away. It is interesting following all the analysis and speculation but at the end of the day I always remember this is a long-term strategy and part of my way of getting outside the pen. Thanks again, everybody at PP.

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Arthur Robey
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Psst. Wanna buy some silver?

I like to watch ebay on the grounds that it is closer to a real market with real price discovery. On the other hand as a market place it looks a bit like the shady guy with the greatcoat.

The action there is about $850/kg, few bars and a lot of watchers.

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