The threats of global recession, insurmountable debt, terrible government policy, central bank support, and many other very persuasive arguments present gold as a very appealing investment or safe haven but all of this is an illusion. Gold was a sensible investment in the early part of the bull market (1999-07), but has now become a false sense of security for many investors who will soon learn the hard way. Not only are the fundamentals already priced in, the technicals severely weakened, and the extremes in gold optimism easily apparent, but the bad news for gold could soon get much worse. The market is digesting, and gold is looking increasingly vulnerable. The next weeks or few months will, hopefully, give us a lot more clarity. Words: 1170
So say edited excerpts from an article by ChartProphet (www.chartprophetcapital.com/) as posted on Seeking Alpha under the title Gold Fails 3 Times.
This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
The article goes on to say, in part:
After peaking in September 2011 above $1,900, gold has been stuck in a tight, yet highly volatile, sideways trend between $1,520 and $1,800. Over the same time period, the threats of a renewed global recession have risen and governments have acted irresponsibly and even foolishly, yet gold — the supposed safe haven — has failed to provide the investment solution many had hoped it would be. Instead, gold has performed very poorly in dangerous markets, has seen very sharp price drops, and may have already seen the end of its historic bull market.
Over the next months, gold will make its decision: It will either resume its rise and break out to new all-time highs, or will plummet below its current sideways pattern as investors flock out of gold due to its underperformance. The market is digesting, and gold is looking increasingly vulnerable.
Why Gold Will Drop (Fundamentals)
The reasons for gold’s incredible danger are numerous:
- extreme risk-taking and over-enthusiasm by gold buyers,
- lack of hedging by the miners,
- a false reliance on gold as a “safe haven,”
- poor performance in recent times of turmoil,
- a strengthening U.S. dollar,
- a European recession that is still unresolved,
- Middle East turmoil,
- a China slowdown, and
- weakening overall commodity prices.
The above suggest that gold’s future is much riskier than many are able to detect or willing to accept.
Though gold is supposed to be a hedge against inflation and economic turmoil, our current situation might point to a deflationary period where economic turmoil actually results in falling gold prices. A global economic slowdown leads to lower demand for goods and raw materials, which in turn results in falling prices for stocks and commodities. Since poorer economic conditions lead to a loss of wealth and decreased liquidity, gold will be affected regardless of its “safe” status. If people have less money to use or invest, they will simply has less money left to buy gold. If the price of nearly everything else falls, gold will not be spared — especially when we are already seeing gold weaken substantially.
Now, with some gold bulls turning more cautious (Jim Rogers admits gold may continue to fall, and Goldman Sachs reduced its 2013/2014 year-end targets) and with the fate of quantitative easing (QE) uncertain, there may be much more downside for gold as reality sets in on what has become an overspeculative and crowded asset.
If the economy continues to recover, there will be no need for gold as a flight to safety; and if the economy continues to deteriorate, gold will likely not be safe from the deflationary pressures or flight to liquidity. It appears that gold was a smart bet 10 years ago, but is now just a deceitfully dangerous investment for those who buy into a tremendously overcrowded trade. Gold is an illusion of safety in an uncertain world.
Failure At $1,800 (Technicals)
The fundamental reasons for gold may have continued to convince investors, but the technicals have grown increasingly ominous.
After peaking above $1,900 in September 2011, gold dropped sharply to $1,550 before recovering to $1,800. However, while gold was able to stop a further decline below $1,500, it has been stuck in a large sideways trend for over a year. Prices almost never remain in such a tight range, and must eventually choose a future direction.
The future direction of prices is usually signaled by a “breakout” above or below the trading range. In our case, gold has shifted up and down between ~$1,520 and $1,800 since November 2011. Every time it has approached the upper or lower boundary, it has “bounced” off and reversed course. Specifically, gold bounced off the bottom ($1,520-$1,550) three times and bounced off the top ($1,800) three times as well.
Gold is now increasingly in danger because it is fighting against a strong, proven resistance level at $1,800. Over the past two years, the smart investor is the one who has bought gold at $1,550 and sold at $1,800. In late September and early October 2012, gold gave us another chance to sell near highs of $1,800. Even more importantly, gold has now failed for the third time at $1,800. Since prices have “bounced” from $1,800 and have now reversed course downward, gold is picking up a lot of downside momentum as it approaches the $1,500 support level for the fourth time.
Since support and resistance levels tend to eventually be broken as the number of attempts increases, the $1,500 support level could break soon if gold is not able to stabilize. If the $1,500 level breaks, gold’s bull market is almost certainly over and prices will have confirmed a much larger future decline. If gold falls below $1,500, next support levels will be $1,400, $1,200, and $1,000 on the way to our prediction of $700 within five years. It may sound extreme or implausible, but based on research and all the relevant warning signs it is way more probable than you think.
Since reversing course after failing at $1800, gold has seen sharp falls on its way down to as low as $1,626 in three months. The volatility has increased, and we’ve already seen 10 occasions when gold has dropped $20 or more in one day.
Gold prices could stabilize here at $1,650 and resume their rise to break above $1,800, but the momentum is still pointing down. The next weeks or few months will hopefully give us a lot more clarity.
Regardless, investors truly need to reconsider their gold purchases and decide on an absolute price at which they will sell out of their position in case they win or lose. It would be very smart to, at the very least, watch the $1,500 and $1,800 levels.
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
- The “best of the best” financial, economic and investment articles to be found on the internet
- An “edited excerpts” format to provide brevity & clarity to ensure a fast & easy read
- Don’t waste time searching for articles worth reading. We do it for you!
- Register HERE and automatically receive every article posted
- “Follow Us” on twitter & “Like Us” on Facebook
It is impossible not to read some source…touting the “fact” that the price of gold and silver will be…[“$x”, “$y”, etc.] in the “coming months” or in the “next year or two,” etc. The market, however, does not echo those…sentiments because that is exactly what they are, sentiments. When it comes to sentiments or opinions, regardless of how close to source or how well reasoned, the market does not care. The charts are all-knowing, and they present everything known about the price, sans any opinion(s). Just deal with the facts and plan accordingly. Trust the markets – they never lie – [and this is what they are saying about the price of gold and silver in 2013]. Words: 1889; Charts: 6
Seeing the S&P 500 outperform gold and seeing gold stocks get decimated…has been enough to create suicidal sentiment…in the precious metals (PM) sector…but, as the many calls for an end of the PM bull market…[are expressed,] the risk in the PM sector gets lower and lower. The bigger picture hasn’t changed and isn’t going to for some time [so] keep the faith and hold onto your PM sector items tight. Don’t let the short and intermediate-term noise distract you from what STILL promises to be a secular bull market for the history books. The Dow to Gold ratio will hit 2 and might even go below 1 this cycle. [Let me explain.] Words: 873
Sentiment in the precious metals sector is in the toilet yet the fundamentals for the sector are off the walls positive. That is not secret, but it is what creates huge market moves in the direction of the fundamentals. In fact, market management will never move price against the underlying fundamentals for too long a period of time.
There is a high probability that the correction in the gold price that started in early October at $1797 has been completed. Once $1800 is taken out on the upside the gold chart will look tremendous. A beautiful “cup and handle” base would then provide strong support for a vigorous upward climb in the precious metal. At this stage there is no reason to abandon the rough target of $4500 for this coming upward wave. [Below is my analysis and some charts on the situation.] Words: 434; Charts: 2
The fact that nobody really knows with absolute certainty where gold will really go from today onward makes people try to make their own guesses about what can happen with the yellow metal. One of the methods to do that is to look back into past situations and try to estimate if what is happening now is somehow similar to those past events. The situation in the gold market today is different than the one in 1980 in a few important areas. Even if past patterns don’t give you any certainty, though, sometimes they can limit the uncertainty. Let us analyze that in more detail. Words: 1260; Charts: 2
While the debate rages on about whether or not gold/silver are in some kind of investment bubble, the facts completely obliterate any possible argument supporting the “bubble” thesis. [Here they are.] Words: 585
The current availability ratio of physical silver to gold for investment purposes is approximately 3:1. So, why is it that investors are allocating their dollars to silver at a much higher ratio? What is it that these “smart” investors understand? Let’s have a look at the numbers and see if it’s time for investors to do as a wise man once said and “follow the money.” Words: 1052; Tables: 1
Gold is sought after and saved when its price is rising in anticipation of rising inflation, or on concerns created by the collapse of currencies and in the final stage of long bull markets in any asset, prices often continue to rise further for no other reason than that they have been rising so dramatically for so long, making investors confident they can extend expectations for more gains in a straight line into the future, rather than thinking cycles. [That begs the question no gold bug wants to contemplate “Could gold’s long bull run be over?” Let’s try and answer that question.] Words: 814; Charts: 3
[While] the price of gold has gone up for 12 straight years, and is on pace to make it 13 when this year comes to a close, it seems that despite all of the gold bugs calling for the metal to surge to unbelievable highs, major financial institutions are calling for the gold bubble to finally burst in the coming months. [Let’s examine what they and others have to say.] Words: 450
Gold’s loss of momentum in the past months has predictably brought out calls to short gold. [This article offers] a brief guide to whether you should consider or ignore these [suggestions]. Words: 1184; Charts: 1
I view the current market weakness in gold, coupled with the pullback in trader positions, as a shorting opportunity which is strong in terms of reward vs. risk. I have come to that conclusion by questioning the assumptions that many make about it, isolating its fundamental drivers and providing a trading recommendation as to where I believe the price is headed in the future. Let me share my analyses with you. (Words: 1440; Charts: 4; Tables: 1)
This article looks at 7 reasons why gold and silver should experience further weakness over the days/weeks ahead. (Words: 206; Charts: 5)
At the end of the day the gold price is not a mystery – it’s a proxy for dollar weakness. After spending the previous fall and winter testing new nominal highs above $1,800, future investors may come to view…2012 as the opportunity of the decade. Gold has shown its strength and retreated. While most investors will take that as a signal that the market has topped, some will take advantage of the general trepidation to add to their positions at hundreds of dollars off the highs. Words: 700
What is developing in the markets is not the beginning of another leg down in gold, but a second chance to get positioned for what should be a very profitable intermediate degree rally over the next 2-3 months. [Let me explain further with a number of charts to support my position.] Words: 460
We’ve been surprised at the recent action in the precious metals complex. During the recent correction the shares were showing quite a bit more strength than the metals. Then the shares took a dive below support yet the metals maintained their recent lows! How do we interpret this wild volatility in the relationship between the shares and the metals? Quite often we look at daily and weekly charts. Now is the time to take a look at the monthly charts which can help us get a better read on the larger trends at hand. Words: 636
Our subscription service provides detailed technical analysis of where the price of gold, silver and precious metal stocks are going short term (in the next week or two), intermediate term (within the next 3-6 months) and long term (the ultimate top) in each stage of their respective bull runs. This service comes with detailed charting based on conventional technical analysis and our proprietary fractal analysis based on the ’70s. Below are some of our latest comments and rationale for expected price movements in gold without illustative charts which are only available to subscribers. Words: 1000