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Down Goes Gold As Dollar Flexes, Euro Toasted
By John Dobosz | Forbes – 11 hrs ago
Whether you trade the market by charts or by fundamentals, you have good reasons to be bearish on the yellow metal.
First on the fundamentals, it looks like the printing presses of the central banks have paused from their money printing efforts, at least for now. Both the European Central Bank last week, and now the Federal Reserve this week, have opted not to monetize extraordinarily large amounts of debt from troubled borrowers. No QE 3 from Ben, and no big bond buying spree from Mario.
The fear gripping markets, rational or not, is deflation -- not inflation, for which gold is a time-tested hedge. Deflation juices up the value of the dollar and that can hurt gold.
When monetary policy tightens, or at least doesn't get any looser, gold usually gets hurt, and it has in recent days, with a fresh 5% tumble today in February gold futures and a 3.5% drop in the SPDR Gold Trust (GLD). Miners were roughed up but not as badly as the metal: Goldcorp and Newmont Mining were down more than 2% and Anglogold (AU) lost less than 1%. Small miners took it hard, with the Market Vectors Junior Gold Miners ETF (GDXJ) falling 4%.
"Gold is fool's gold, it's a bubble of epic proportions," says Steve Cortes of Veracruz LLC.
Author of "Against The Herd," Cortes regards going short gold to be a contrarian trade since the prevalent sentiment in the market is that gold is the only safe haven. Sure it was safe on its way from $100 to $850 an ounce between 1976 and 1980, but how safe was it to buy in 1980 at $850 and hold it for the next 20 years hovering around $300/ounce? "It's really a huge greater fool theory at play," says Cortes.
The technical damage is more than a flesh wound for gold's price chart. With the sell-off below $1,600 to $1,587 on Wednesday, spot gold has fallen below its 200-day moving average for the first time since early 2009.
The bloodbath also erases gold's big summer rally, bringing it back to levels from late June and early July.
By John Dobosz | Forbes – 11 hrs ago
Whether you trade the market by charts or by fundamentals, you have good reasons to be bearish on the yellow metal.
First on the fundamentals, it looks like the printing presses of the central banks have paused from their money printing efforts, at least for now. Both the European Central Bank last week, and now the Federal Reserve this week, have opted not to monetize extraordinarily large amounts of debt from troubled borrowers. No QE 3 from Ben, and no big bond buying spree from Mario.
The fear gripping markets, rational or not, is deflation -- not inflation, for which gold is a time-tested hedge. Deflation juices up the value of the dollar and that can hurt gold.
When monetary policy tightens, or at least doesn't get any looser, gold usually gets hurt, and it has in recent days, with a fresh 5% tumble today in February gold futures and a 3.5% drop in the SPDR Gold Trust (GLD). Miners were roughed up but not as badly as the metal: Goldcorp and Newmont Mining were down more than 2% and Anglogold (AU) lost less than 1%. Small miners took it hard, with the Market Vectors Junior Gold Miners ETF (GDXJ) falling 4%.
"Gold is fool's gold, it's a bubble of epic proportions," says Steve Cortes of Veracruz LLC.
Author of "Against The Herd," Cortes regards going short gold to be a contrarian trade since the prevalent sentiment in the market is that gold is the only safe haven. Sure it was safe on its way from $100 to $850 an ounce between 1976 and 1980, but how safe was it to buy in 1980 at $850 and hold it for the next 20 years hovering around $300/ounce? "It's really a huge greater fool theory at play," says Cortes.
The technical damage is more than a flesh wound for gold's price chart. With the sell-off below $1,600 to $1,587 on Wednesday, spot gold has fallen below its 200-day moving average for the first time since early 2009.
The bloodbath also erases gold's big summer rally, bringing it back to levels from late June and early July.
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