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Late Friday afternoon in New York (April 12, 2013) gold plunged
through the critical support level around $1525 level that has held
resolutely since the start of this 19 month correction from $1900 in
September 2011. In the process of this sudden drop, confidence in gold by
long term investors has been badly shaken.
The sad thing is that this late afternoon selloff was an orchestrated
event by people wishing to see the gold price lower so that they could cover
short positions in the paper gold markets. Proof of this is that London PM
fixing on Friday was $1535. Once the London physical market closed, the
orchestrated selling in the paper markets gathered momentum. By the close of
the Comex paper gold market, gold had dropped $60
in just the last couple of hours on very high volume.
This is not something new. Observers of the gold market have been
aware of many other occasions where similar events on a smaller scale have
taken place on Friday afternoons. There is little point getting one’s
knickers in a knot about this because every short sale in the paper market
has to be covered by a corresponding purchase in due course. Thus if people
who bought into the selling spree simply hold onto their positions, a short
squeeze will eventually develop as the short sellers try to cover their
positions, causing the gold price to rise.
Often the physical markets come to the rescue as the lower prices
generated by the Friday selloff sparks increased buying in the physical
markets, helping to spur the recovery. The result is that the price of gold
recovers fairly quickly after a Friday afternoon selloff. The coming week
will show whether this happens again this time.
In January this year I published an article indicating that there
seemed to be a reasonable chance that the long gold correction was over. That
article indicated that if gold dropped below $1636, that the analysis was
incorrect and that something else was happening. Gold did drop below $1636
and has continued to decline, proving that the January analysis was faulty.
At that time last January I had assumed that the rise from $1540 to
$1790 in 2012 was the first upleg of the new bull
market and that the correction to $1636 was the first minor correction of the
new bull market. These were incorrect assumptions. The big correction from
$1900 in September 2011 was still under way. The low had still to be reached.
In my Keynote speech to the Sydney Gold Symposium in 2011 I had a
target of $1480 for the low of the expected correction. Despite several
plunges into the low $1500’s, the price never achieved that $1480
target. The low price for Comex was $1523 and the
lowest PM fixing was $1531 in late December 2011.
It bothered me from time to time that gold had not achieved my target.
Now the late Friday selloff last week has driven the gold price to a closing
level of $1477, finally reaching the target of $1480 set 19 months ago. What
remains to be seen is whether this target holds and that the bull market
resumes. The coming weeks should indicate what is happening.
What we need to look for is a swift recovery to above $1500 and an
ongoing strong up-move in a truly impulsive manner. The fundamentals for
holding gold are as strong as ever. Gold is an insurance against a range of
financial disasters that we don’t need to go into now. You do not
cancel your fire insurance when you can see fires burning all around you.
Certainly confidence in gold has been shaken and sentiment indicators
are at record lows in some cases. This is exactly what one would expect at a
major low in the market after a brutal 19 month correction. The conclusion is
that factors are now in place which could support a major low in the gold
price.
Alf Field
14 April 2013
ajfield@attglobal.net
(Note that I will be on holiday with my family
in Fiji for the next week and will be out of email contact until late April.
I will be unable to respond to emails during that period.)
Disclosure and Disclaimer Statement: The author has personal
investments in gold and silver bullion, as well as in gold, silver, uranium
and base metal mining shares. The author’s objective in writing this
article is to interest potential investors in this subject to the point where
they are encouraged to conduct their own further diligent research. Neither
the information nor the opinions expressed should be construed as a
solicitation to buy or sell any stock, currency or commodity. Investors are
recommended to obtain the advice of a qualified investment advisor before
entering into any transactions. The author has neither been paid nor received
any other inducement to write this article.
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