The price of gold has gotten crushed.
As I write this, gold is down $150 to $1,353 an ounce — and falling fast…
All major U.S. and Asian markets are down. Emerging markets took a hit overnight.
All countries with strong currency tied to gold — like Canada, Australia, and South Africa — are also taking a hit.
Metal miners are especially hard hit. Barrick Gold Corp (NYSE: ABX), for example, is down 11.54%.
Don’t expect a V-shaped recovery…
This is the ETF GLD, which closely tracks gold.
As you can see in this ten-year chart, GLD has put in a double top with the second high being lower than the first (bearish). We broke the uptrend that has been in place going back to the bottom of the last crash (bearish). The longer, 15-year bull trend is still in place, but at a much lower level (bearish).
Volume is declining, and the MACD crossed well above the zero line (bearish and bearish).
The technicals say we are heading back to the $1,150 – $1,180 range.
The sudden decline in the price of gold has shocked many investors.
Zerohedge is reporting this is the biggest two-day drop in 30 years, that this type of gold crash leads market crashes:
The rapidity of gold’s drop is impressive, concerning, and disorderly.
We have seen two other such instances of disorderly ‘hurried’ selling in the last five years. In July 2008, gold quickly dropped 21% — seemingly pre-empting the Lehman debacle and the collapse of the Western banking system.
In September 2011, gold fell 20% in a short period — as Europe’s risks exploded and stocks slumped, prompting a globally coordinated central bank intervention the likes of which we have not seen before.
Given the almost record-breaking drop in gold in the last few days, we wonder what is coming…
Others point to panic sell orders and robotic margin calls and deflation fears.
Businessweek says the sell-off is due to falling inflation:
Why is gold plunging? The most important factor is that global inflation is falling, reducing gold’s value as a hedge against rising prices. Gold bugs who were betting on an outburst of inflation are scrambling to reverse their bets and exit their gold positions at any price.
For consumers struggling to make ends meet, it may seem hard to believe that inflation is falling. But the evidence is clear from JPMorgan Chase’s global consumer price index, which covers more than 30 countries that collectively represent more than 90% of world economic output.
The thinking goes that if stocks are up and there is no inflation, why hold gold?
China Stumbles
This all could have more to do with a miss by China on GDP than anything else. The market expected 8% and got 7.7%.
All commodities sold off: Copper is at a 15-month low of $3.23. Gold is often part of a commodity basket.
Or it could be that gold has gone up so far, it’s simply overdue for a correction to clear out the weak hands.
I suspect that a big holder got hit by a margin call and triggered the sellbots. It could be like the flash crash. We may never know the exact reason for the big sell-off.
I do know I’m not a buyer here.
For that matter, I’m not a seller, either. My gold holdings are insurance. They will be there when all else is lost.
If you’re looking to add to your own insurance, you should wait until gold drops below $1,200 an ounce.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
