Update on Gold

From Short Side of Long Blog

I wrote a quick article at the beginning of the month, called Could Gold Surprise Us All? In the article I asked if all of us Precious Metals bears could be wrong and stated that:

Let us be honest here for a second. Almost every Wall Street Strategists has been expecting Gold below $1,100 this year and even below $1,000 next year. Every trade has been positioning for the breakdown below the all important support level of around $1,200 per ounce and gross shorts are currently at very high levels. Every media outlet from Bloomberg to CNBC has been talking about how much of a poor investment Gold has been. Many sentiment surveys, including the Daily Sentiment Index, reached record low levels on the recent decline. Even I have been expecting prices towards a $1,000 physiologically important support level. Could all of us be wrong?

 

Chart 1: Gold has crated a false break down and reversed powerfully… 

GLD vs Physical Holdings 

Source: Short Side of Long

 

Well, according to the recent price action the so called “easiest trade in the world”, which was shorting Gold as it broke below the eighteen month long $1185 support, has now totally reversed on the bears. My experience is very limited as young man, but usually when the market fails to hold a break in one direction, it tends to trap all of the group think mentality and swings powerfully the other way. We have a technical wedge in place, with a very defined support and resistance levels. The question is, with everyone expecting Gold at $1000 per ounce, can Gold now break out on the upside? Majority will still say no, despite recent price action.

But before you do that, I would like to make one final observation. Just for one second, think about this: policy makers and market participants seems to be obsessed with deflation fears right now. At the same time, since June of this year, US Dollar has gone through the roof. Currencies such as Euro, Yen, Aussie and many others such as Russian Ruble have collapsed. Furthermore, commodities such as Crude Oil have also collapsed by almost 50% in 6 months. The strong Dollar rally is putting pressure on everything, everything apart from Gold. Despite all these deflationary forces, Gold still trades above $1,200 like nothing happened – the same level it traded in June 2013.

If fundamentals are so awful for the yellow metal, ask yourself why isn’t it dropping? Maybe because, when it’s obvious to the public… its obviously wrong.