Gold bugs squashed by aggressive selling

Bullion sinks to five-year low on concerted wave of selling...

'curious what you guys think of this.. looks like the fall was mainly during the asian trading hours.

Is this china's way of trying to assuage fears of impending stock market losses?

If this is an unnatural fall, do you think the prices will creep back up? When?

https://next.ft.com/f0a12268-2eaf-11e5-91ac-a5e17d9b4cff

http://www.wsj.com/articles/gold-continues-sliding-hits-5-year-low-1437…

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Comments (22)

Jul 21, 2015 - 8:48am
Mr. Skilling:

Perhaps people realized that they were invested in an "asset" that is really just a rock that doesn't pay dividends, interest, and actually costs to store and insure?

true... but isn't the timing really odd given the greek crisis, chinese stock market tumble and the general slowing even in BRIC? I would expect gold to become stronger in such a scenario..

Jul 21, 2015 - 1:39pm
Mr. Skilling:

Perhaps people realized that they were invested in an "asset" that is really just a rock that doesn't pay dividends, interest, and actually costs to store and insure? That or 50 Cent flooded the market with his stash when he went bankrupt.

Judging by your username, I assume you know a lot about going broke.

Jul 21, 2015 - 12:29am

I'm not sure what the culture is surrounding gold (unlike in India where it has significant importance) but perhaps this is a way for investors to liquidate assets to hedge against the inflated prices of stock?

Or maybe banks or institutions which extended credit and loans to consumers by taking on stock as collateral realizing how foolish it was and trying to cash in assuming the stock market goes bust?

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Jul 21, 2015 - 3:17am

generally, most action in gold seems to happen during Asian and European trading hours. This is mainly because the gold fixing takes place in London as well as the LIBOR. Interest rates are a gold killer and anyone whose watched CNBC for the past year know where that is going. China is still getting gold on the cheap but now the dollar is stronger and treasuries will start to look more attractive. The writing has been on the wall as we move into an asset backed cycle rather than a goods backed cycle (post 2008). Commodities had a super cycle that was bolstered by emerging markets. Now that some of the emerging markets are slowing down, expect to see a further down side with some respectable retracements to the upside along the way. Also, that 35 point move happened inside of five minutes, I would suspect that HFT algos helped accelerate the momentum.

Jul 21, 2015 - 11:31am

dollar strength is a gold negative...investors flock to gold during a monetary crisis / when there is doubt surrounding fiat currencies. the greek crisis was a political crisis and at no point were there any concerns surrounding the dollar, which is why we didn't see gold bounce during that time. the market also is expecting a rate hike this year (pricing in >50% chance of a hike by the sept meeting), especially following yellen's remarks last week

Jul 21, 2015 - 12:03pm

good points.. its ok that you disagree but let me explain..

monkeyspells:

dollar strength is a gold negative...investors flock to gold during a monetary crisis / when there is doubt surrounding fiat currencies.

well.. stock markets strength is gold negative.. that does not really translate into dollar strength => gold -ve. e.g. lets assume that dollar got stronger by 10% and gold price fell by 20% (in nominal dollars) over the same period (ignoring inflation) In REAL terms gold price just fell [1-(1-0.2)*1.1 = ] 12% instead of the 20% it would have fallen in the absence of dollar getting stronger. In other words, in real terms dollar strength cushioned the fall in gold price.

monkeyspells:

the greek crisis was a political crisis and at no point were there any concerns surrounding the dollar, which is why we didn't see gold bounce during that time

the greek banks set limits of 60 euros of withdrawal per day because everyone there got risk averse and wanted to hold onto something with value (euros).. that reasoning can easily be extended to gold => gold price should have gone up..

monkeyspells:

the market also *is* expecting a rate hike this year (pricing in >50% chance of a hike by the sept meeting), especially following yellen's remarks last week

The market was also expecting rate hikes in march & june - that didn't happen.. in any case, rate hikes would make dollar even more attractive thereby making it stronger (right now, per you, only 50% is priced in) and creating cost disadvantages for US firms - which is made worse by the general slowing of BRIC.. in my opinion, rate hike in sept is also not going to happen.

Jul 21, 2015 - 1:24pm

dollar strength is gold negative if the reason for the strength is diverging IR policy from the rest of the world (ie increasing yields). stocks/gold has only been negatively correlated recently because an improving economy/increasing inflation paves the way to the fed exiting ZIRP (in '08-12 when the fed was ramping up QE it was a strong, positive correlation)

as for your second point, physical demand for gold from greek civilians would be a very small amount from the grand scheme of things, and financial gold prices aren't driven by the physical market as much you'd see in other commodity markets. ironically enough, there's a huge disconnect right now with all of the managed money/hedge funds selling paper while the retail banks are facing a shortage of gold coins due to retail demand (looking to buy cuz it's "cheap")

lastly, the tone coming from the fed was markedly different back in mar/jun - expectations for any potential hike was for later in the year. it wasn't until they removed the "patient" language that a june hike became a possibility, but even then they were so dovish that the market pushed back hike expectations to september. now, following yellen's comments, ppl are looking at a hike being almost a certainty before year end

Jul 21, 2015 - 6:46pm

It matters that it's going to happen and even if it is a small increase, that will cause enough bearish sentiment in the market for gold to move to the downside. Watch what happens to gold everytime Yellen speaks or look what happened every time QE was inceased...gold reacts as does the dollar. Now, some fund/trader/bank/algo is seeing building bearish sentiment in the market and drops 5000 lots in 2 mins and sends everyone into a panic and buys it right back. To your point about Greece and the Chinese stock market, yes maybe there was some deviation from how people would flee to gold as a safe haven during these events. But as others pointed out, equities are stronger and look more attractive than gold to institutional investors. Also, the dollar is becoming stronger against the Euro due to the Greece situation. @Monkeyspells pretty much sums it up below.

Jul 21, 2015 - 8:45pm

In my opinion, Gold has been heading to it's cost of production price since it peaked near $1,900/oz.

"I am that I am"
Jul 22, 2015 - 1:29pm

Great buying opportunity. Once Yellen shows her chicken shit colors gold will be right back up. Rates aren't going anywhere any time soon. She's going to absolutely monkey hammer U.S. exporters if she tightens given how strong the dollar already is. Inflation massively underreported and Fed/BLS cartel have tight control over this. Once ppl realize they can't get by on $15/hr minimum wage, up 200% last 15 years, they will wise up to the fact the true inflation for most U.S. consumers is in the high-single/low double-digit ballpark. Buy gold! Sell tech stocks and hamburger joints.

Jul 22, 2015 - 2:22pm

The global "Gold Rush" is over, so in my mind this is just part of the return to sanity. Interesting though that gold prices would decline in China while their stock market is crashing.

Get busy living
Jul 22, 2015 - 9:42pm

Being long gold is a bet on systemic failure (i.e. you're betting against human ingenuity). It will rally next time there is a recession only to fade once people realize the world isn't ending. And stocks and real estate are much better hedges against inflation.

Gold is a trade not an investment, imho.

[quote=patternfinder]

Of course, I would just buy in scales.

[/quote]

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Jul 23, 2015 - 10:43am
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