"No man can become rich without himself enriching others"
Andrew Carnegie

Saturday, April 13, 2013

Gold Price Jumps Off a Cliff

By Daily Reckoning

Chicago, Apr.13, free portfolios .- Frankly, we’ve forgotten what we were writing about this morning when this happened:
Gold Price, April 12, 2013

When gold broke through the $1,525 level traders hit the panic button with a fresh verve.

Ignoring a few, umn, [irreproducible] IMs from colleagues, we looked around for an event... a large short position... something to explain the drop. We found this instead from CNBC:

“Reports that Cyprus was going to sell 40 tons of gold was an immediate catalyst for selling, but traders say the bigger factors are concerns about a softening economy, and reports of weaker demand in the oil market.”

“There’s a tremendous amount of new shorting going on in the metals market right now,” a slightly more useful Kevin Grady, president of Phoenix Futures and Options, offered the cable outfit.

As we’ve been following gold with some interest since Monica Lewinsky was scouring her couch for the change needed to settle her dry cleaning bills, we’d ordinarily view such a stark drop as a sign to not only buy... but to write “BUY!” in all caps.

But this morning comments like those of Jon Najarian, co-founder of OptionMonster.com, give us pause:

Gold’s weakness is part of a growing body of evidence that the yellow metal isn’t necessarily the alternative currency of choice. “Bitcoin is a sign and a symptom of what’s wrong, but unfortunately gold is not the cure,” Najarian says. “Gold is not the beneficiary of all that fear.”


“Gold is just another slip of paper being bought and sold on the whims and urges of the crowds,” Najarian contends, “Of course that doesn’t mean gold can’t be traded, just that it’s time to consider it from a trading perspective rather than a storage place of wealth.”
“Puffery,” we wanted to reply.

“Marketing,” we dismissed.

“B&llshIIt,” we mumbled.

That is until, we viewed this chart from our own Greg Guenthner:

“1,550 was the line in the sand,” Greg says. “How gold reacts here will be telling. Failure to reclaim $1,550 could take us back to 2010 prices in short order.”

Gold ranks high in our esteem. If you’ve been reading for some time, you may have picked that up.

The metal functions best when it preserves your wealth; a safety valve when politicians, bureaucrats, bank presidents, generals, academics and your neighbor think they know better than the market what is good for you...

But when even AU is an object of a trader’s point-and-click system... oy. Gold with paper surrogates like the ETF GLD attached... it doesn’t function the way we’ve become accustomed to. Or... like the way we wish it would.

Or does it?

Dan Denning from our Australian bureau in Melbourne delves more deeply, in today’s guest essay, below...

[Ed. Note: Rarely do you see the phrase “pyramid scheme” used with any more understanding than a six-year-old tackling a math problem. Yet, in today’s Daily Reckoning PRO, Ryan O’Connor identifies “one of the more famous battleground stocks hitting the headlines” in which the phrase is used with little abandon.

Pyramid scheme” screams one hedge fund manager... “Hogwash!” a chorus replies. You be the judge. Read the full story in today’s DR PRO and place your bet accordingly.]...

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