Just
when it looked like things couldn’t get worse they got a lot worse. The
gold market endured its worst two day drop in 30 years when massive
selling took the price to $1325. There were a lot of reasons given for the panic – and it was a panic – but the
chief culprits seemed to be a short recommendation by Goldman Sachs,
rumors of potential selling by several European central banks and fears
that the US Fed was about to take the punch bowl away.
An added reason I think was unwinding of long Yen carry trades, some of which had long gold holdings on the other side. Selling gold and yen to close out the yen longs and go short added pressure to the situation. Large
short holders in the gold market saw a profit opportunity and sold hard
on the first day of the large drop, triggering stop loss orders as
successive “resistance” levels were passed through. Once the drop hit
the news wires retail holders of GLD and hedge funds that were just
riding the trade continued the stampede. By the time gold bottomed on
the Monday “everyone” knew it was a bear market and that the price had
nowhere to go but down.
Is there any good news to be had in this scenario? There may be though it’s too early to be sure. One
of the biggest problems with both gold and the market for companies
that explore for and produce it has been the lack of a bottom. The market has been awful but there were few signs you could point to that indicated a bottom might be in, or even on the way. It was a slow motion train wreck that never looked like it would end.
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