Well I hate to say I told you so, but I did tell you so many, many times. Starting with my article back in December of 2012, “Will 2013 Be The Year That Gold Dies?”
In reality no asset really dies, just holders of assets die (portfolio wise that is) and especially holders of leveraged assets.
For all the money printing huffing and puffing the Fed has done, gold seems to be the only asset class that is falling as a result. Strange isn’t it? Yes it is, but that’s what happens to a crowded trade when everyone makes for the exits. And as far as crowded trades go, gold is probably at the top of the list.
Here on SA alone, what is the ratio of gold bull to gold bear articles? I don’t know, but I am willing to place a bet at least 20:1. Looking at the different newsletter writers on the web, how many writers have ever been bearish on gold? Without meaning to deprive anyone that they also said so, there is not a single gold newsletter that I am aware of that has ever said sell gold and buy something else because you might lose.
I don’t want to get into the particulars about gold fundamentals today. I have outlined why gold would fall many times, especially in the article above and this one here. The main thesis was that gold will go down because investment demand for gold has gone down. And like I said just yesterday, gold will continue to go down until investment demand returns.
Today I want to explore the speculation possibilities of gold because I am of the opinion that we are entering a panic stage and I smell massive gold capitulation. And where there is capitulation, there are short term profits to be made.
Let’s take a look at the chart of gold below:
Gold is approaching the $1,270 level. As a reminder, this is both Goldman Sachs’ 2014 target price and a current resistance level at the same time. If gold takes these levels out, then the next support level is around $1,000, although one can argue of more resistance levels in between.
The question of the day is, will gold stop at $1,270 or will it continue further south? Well we don’t know that yet, but we can make an educated guess.
The sentiment in gold for now is very bearish. Just about every news headline out there talks about falling gold prices. Herd mentality has kicked in and that means everyone is selling or will do so.
Chinese macro data is also very bearish for gold. China Manufacturing PMI hit a nine-month low recently, with new orders continuing to decline.
A stronger dollar by definition is a market deflationary event. The dollar the past couple of days has been rising, leveraging the fall in gold and other risk assets. In addition, if the Fed does lower pumping (printing), then gold will have more reasons to correct, because supposedly dollar printing was one of the reasons for its rise (although I never adopted such a theorem).
As such, I think the capitulation process is not over and gold will eventually take out $1,270 soon. In addition, there is not enough time to get some positive gold momentum to avert this. The current price of gold is just too close to the $1,270 mark.
So if in the next couple of weeks or days we do get a confirmation, then I think that gold is going all the way down to the $1,000 level, where I think will be a major opportunity for all things gold.
I think $1,270 will be taken out and soon.
If we do finally see gold at $1,000, I think that will represent a very big opportunity, both in gold and gold stocks. Also, gold stocks will bottom before gold does, so I will be looking at many gold stocks and ETFs as a proxy for gold bottoming in the future. Stay tuned.