New website look - Coming soon! (more info)

Don't Believe The Hype In Gold

Don't Believe The Hype In Gold

The minutes from the December FOMC meeting created turmoil across the markets this week. The author of the article is long gold and will remain that way until the fundamentals for gold actually worsen. Gold has dropped six weeks in a row, however looking at other factors, it makes little sense to draw any conclusions about the trading action in gold.

Tom Luongo
January 6, 2013
Seeking Alpha

The minutes from the December FOMC meeting created a firestorm across the markets this week, which caused rumblings in nearly every market that matters -- from oil to bonds to gold. The virtual blood of many a column inch was not spared as the discussion of this in real time was furious, with everyone attempting to talk their book and, like the Fed, jawbone the market to their desired conclusions.

Such is the state of modern financial writing, but I digress.

I'm long gold. I've been long gold since 1999. I will continue to be long gold until such time as the fundamentals for gold actually worsen. Moment-to-moment price swings are only interesting from a trader's perspective. I learned a long time ago that I have neither the skill nor the temperament to trade gold and gold mining stocks in the current environment. So, for anyone thinking that this article will be just another in a long litany of someone talking his short-term book -- a la Goldman Sachs (GS) -- I have refreshing news for you. I'm not. I am, however, interested in how gold moves day to day and week to week to spot important pivot points.

gold chart

Here's the latest weekly chart for gold. Notice anything interesting? I do. Gold has dropped six weeks in a row. That's a rare thing. One might say that implies the bull market is over. One could also say that gold rarely moves down for that long without staging some form of rally. Few things move down for six weeks in a row. So, who's talking their book now? Maybe it's the Fed.

In the last eight years (254 weeks), gold has dropped six or more weeks in a row just 11 times -- that's a 4.3% probability. And, yes, these are exceptional times. Of that there is no question. The action on Friday after a brutal sell-off to $1,626 nearly took gold positive for the trading week. If I were still a trader, I would consider that a statement. It was an exceptionally violent week that had a number of outlier events contained within it, including:

1.The end of a calendar and, therefore, tax year when funds and investors were waiting until the last moment to handicap the tax law negotiations in Washington, D.C.
2. A major piece of legislation was filed after the market closed on New Year's Eve.
3.The FOMC released its monthly minutes.
4.Gold's range for the week was nearly $70.

When one stops to think about the sheer size and scope of the variables in play, it actually makes little sense to draw any conclusions about the trading action in gold this week. That's why the headlines are really nothing more than hyperbole. After all of that noise, gold wound up off $3.60 from where it opened on Monday. Does that sound like the beginning of a bear market to you? But that is exactly what we've been told.

What really happened on Thursday and Friday after the FOMC minutes release was that a lot of people who had ridden the bond bubble in 2012 waited to book profits until after the end of the year. The speculative bloom had come off the bond rose, as it were. All the central banks are printing. The fundamentals for long-dated bonds are horrible. We all know this. He who prints the slowest will win the "Currency Wars."

Taking money made in 2012 and getting to cash for redeployment under the new tax rules makes sense for a lot of people. Gold got caught in that crossfire. It's a currency, and dollars were in demand this week. The Fed helped things along by pulling back on credit by $8.9 billion after pumping in more than $50 billion in the two weeks previous -- the first week since the end of October where total Fed credit contracted. Again, trade on what the Fed does not what the Fed says.

To see entire article CLICK HERE

More Links

Weekly Charts

Current Spot Prices

Weekly Charts
Current Spot Prices

Gold

$2232.75

Silver

$24.95

Platinum

$910.29