Custom Search

Tuesday, March 3, 2009

Short Gold and Silver: It Will Only Get More Interesting

The Short Gold and Silver trade has this ninja almost giddy with excitement.

Gold (GLD), THE SAFE HAVEN, is actually declining significantly even as the broader equity markets unceremoniously knock out new low after new low. The Gold Bugs are clearly all in and exhausted. When the S&P 500 (SPX) cracked 700 near the close on Monday, GLD was able to manage a amazing 15 minutes of strength (three consecutive white candles on the 5 minute intraday chart).

Silver (SLV) doesn't have quite the same appeal as a save haven, and in percentage terms it has faired significantly worse.

Now if Gold and Silver cannot catch a bid as the broader markets grind slowly into the abyss... what do you suppose will happen when equities finally put in that counter trend bounce? Can you say BEAR RAID?

Short: Gold and Silver, Just Getting Started. Fun times...

Oh and I can't wait for the full consequences of deflation to reveal themselves for all the world to see... and the bid just disappears out from under Gold and Silver.

Deflation first. Inflation second... much much later. It's all part of The Master Plan.

13 comments:

Mitch said...

Great coverage on this Ben. Appreciate all your work, made a bucket load on this trade. Very interesting couple sessions ahead i think... Possible Bounce first, then resume the slide down?

Irrational Doomsday Blog said...

"The Gold Bugs are clearly all in and exhausted."

I think I'd agree, traders are going to have some room to play in between rallies. I'd guess the gold bugs have been taking physical delivery and stopped participating for armageddon. I think the demographic for hoarding is only going to increase, so I'm still bullish on this for the long term.

Anonymous said...

given the posts ive read on silver and gold at the blog it seems you have a natural inclination to participate on the short side of this market when clearly the precious metals are in a long term bull market. were you long during the move back to gold 1000? or better yet silver to 14?

Anonymous said...

Gold and gold receivables held by euro zone central banks fell by 214 million euros ($271 million) to 217.779 billion euros in the week ending Feb. 27, the European Central Bank said on Tuesday.
Net foreign exchange reserves in the Eurosystem of central banks fell by 35.1 billion euros to 275.4 billion euros, the ECB said in its regular weekly consolidated financial statement.
Gold holdings fell because of sales by one euro zone central bank, consistent with the 2004 Central Bank Gold Agreement, the ECB said.
http://www.iii.co.uk/news/?type=afxnews&articleid=7198141&action=article

ECB is gonna help.

none said...

Your analysis of the situation is a bit simplistic, to say the least ('deflation means gold falls and inflation means that gold will rise', 'gold will fall when stocks rise'):

1. Gold fell with the stock market, back in October and it subsequently rallied 'til the beginning of Januari, again together with the stock markets. Then it fell again with the stockmarkets in H1 Januari. But then something strange happened: gold rose, while the stockmarkets fell. And now it declines again, together with the stock markets.

2. Gold rose, in h2 of November 2008, while treasuries soared during one of the biggest T-rallies ever, which seems to have been caused by a deflation scare.

What's next? That's anybody's guess. But it's likely that gold won't decouple from the stock market during this sell-off and that it will rise again, when the stock markets bounces.

Ben Bittrolff said...

None,

I believe the decoupling can be explained by the irrational fear of some kind of central bank induced inflationary cycle.

As the Fed pumped up the money supply people stampeded into Gold, expecting some kind of inflationary burst.

Without inflation, all it takes is a small reversal in the save haven bid for Gold to absolutely plummet. This will occur when equities mount a counter trend rally.

none said...

Ben,

Both the monetary base and M2 have stopped soaring, since the decoupling started:

http://tinyurl.com/ddau4s
http://tinyurl.com/aaphco

Because the fed seems to have changed its strategy:

http://economistsview.typepad.com/timduy/2009/03/when-does-faith-in-financial-engineering-wane.html

And therein lays the key to predicting when the Fed shifts gears; when Bernanke abandons the notion that proper credit market functioning is alone sufficient to restore housing values (asset values more generally) to their former glory and support acceptable growth. At that point, the Fed will again consider the wisdom of what it has defined as quantitative easing, an expansion of the balance sheet via a deliberate expansion of liabilities. Until then, we can expect the Fed to continue its focus on financial engineering.

I think that the simplest interpretation of what's going on is that gold (the paper market) bounced from the resistance at 1000. And that it then got caught up in the broader paper market sell off/stampede to cash: it coped well with a declining market, but can't cope with a selling climax (esp. not after having knocked its head against the 1000 line again). But the bullion market is probably still very strong (premiums on spot price).

This probably means that it will keep falling with the stock market and that it will rise again, when the stampede to cash stops.

However, if we would get a rally because there are serious signs that the economic and the financial situation is stabilising, then gold might sell off, while the stock markets rally (in earnest).

At least for a while, because the attention would then immediately switch to the inflation danger (buffet warned against it) because of all that monetary easing. And jewelry sellers would also step in (again).

S said...

Buffet is on the record laughing at the smug holders of cash and ST debt instruments - not tio mention the unproductive gold that buys more s/p than it dod a month and year ago. So Gold is appreciating in buying paower which is what it is suppose to do. Absolute price is a red herring argument. Like =judging your speed out an airplane window.

Buffet is clearly say buy equity into the face of a deflation. Either he is historically ignorant or he thinks inflation is on the come. Who knows consifdering the mixed signals from treasury and tips markets.

This aside, you gravely misunderstand the psychologial improtance of gold above 1000. The powers that be will do everything in their human power to keep it below theis level. Ifis the entire fiat regime that ends up looking naked and that is a national security issue. See link to former Reagan era official discussing the bullion banks and the game they play. But how long can it last.

I wouldn't consider myself a gold bug by any stretch, but it is clear that beyond the technical buying the treasury market is NOT the risk free asset. Nor is the dollar "safe."

gold=insurance. To assess it otherwise is to miss the entire point.

Perhaps it is the short gold long ammunition trade that is now on. Gold bugs seeing the writing on the wall: can't eat it and that is a real risk.

Anonymous said...

i am holding zsl for more than a day trade. I started 2/25 and have been adding. I think it goes to 17-20, maybe higher.

I'm Not POTUS said...

1st:Long Time reader 1st time writer.
Love it.

2nd: I have no informed opinion on inflate/deflate issue.

All I wonder about is....Did anyone think through what happens when a Global "Just in Time" economic engine turns into "Should have been here by now" seized block of frozen iron?

I would love to play the short but I have no idea when the clock is going to run out and the lights go off.

Anonymous said...

readers interested in participating on the long side in metals via tangible metal purchases should check up on local physical metal inventories. the coin shop i prefer to patronize may fall behind once again on physical supply. the next chop down could be gnarly. signing off,

Adam said...

Ben-

Love your blog and read it religiously. I agree you're right short term, but people who don't know what they are doing are going to get their faces ripped off if they think shorting gold is more than a 2-4 week trade from the recent peak.

My rebuttal:

http://goldversuspaper.blogspot.com/2009/03/forget-conventional-wisdom.html

Jason said...

You mentioned before that gold would need a major catalyst to move higher. How do you feel about today's move upward on the Fed's plan to buy treasuries? Will this action truly be (a) inflationary, or will it (b) fail to inject money into the money supply to counteract continuing deflationary forces? I'm personally short gold and equities (unless we get a break upwards tomorrow on the broad markets, or if gold goes over 1k), but I may need to rethink things in the short term.

It seems like the broad message from their statement was anything but optimistic, though the market reacted positively.