Panicky Gold Sellers Find Safety Aboard Titanic

It’s a crazy world that views dollars and Treasury paper, of all things, as a safe haven whenever the financial news turns unsettling.  Yesterday’s upsetting story had sales of existing homes falling by 2.7% last month, darkening the mirage of recovery in the housing sector. Home sales had risen over the four previous months, but the distress buying that was driving this statistic appears to be drying up. Skittish traders lost no time connecting the dots, dumping gold and piling into dollar assets.  They evidently had concluded – correctly, in our opinion — that the supposed recovery of the broad economy is in jeopardy if housing sales are already starting to fade even with all of the artificial incentives that have been put into place to goose the real estate market.

But why should that make them want to ditch their gold?  Considering that dollars are in promiscuous supply, furnished by the Federal Reserve at interest rates approaching zero, we have trouble understanding why traders would panic to exchange bullion for Treasury debt and dollars (which, need we remind you, are themselves IOUs, not money).  The traders might as well have gotten themselves rescued by the Titanic two thousand miles out of Southampton.

 Gold-selloff-got-our-attention

In any event, by day’s end the inscrutable wizards of Wall Street had caused minor, albeit real, damage to Comex Gold’s daily chart.  Notice how the downward spike exceeded two prior lows without a pause.  That meets our criterion for a bearish “impulse leg,” and although gold quotes must now do a couple more uncouth things to demonstrate that the selling is serious, the price action thus far has gotten our attention.  Indeed, we’d grown so complacent about gold’s ability to surf the waves above $1000 that we didn’t even put out a forecast for Thursday.  While we slept, someone in the chat room mentioned that guru Ira Epstein was expecting an instant drop to 996-998 based on gold’s 18-day moving average — and darned if he wasn’t right!  Looking ahead, if the selloff proves to have been a fake-out, there could be a terrific, low-risk buying opportunity over the near term. It would be predicated on a failed second leg down, provided the current leg doesn’t breach 983.20.  We’ll keep you posted, so don’t stray too far.

If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)

  • richard dudley September 25, 2009, 5:37 pm

    Gold is a seasonal sale here. Selling 993.00 with a 1003 stop.. reversing 913.00 -OCO-November 17. Seasonal low. 8:1 risk reward

  • joseph September 25, 2009, 5:35 pm

    What, skittish traders?

    Are you totally blind?

    PPT dumps gold for support of fiat currency and T-bonds.

    Please read the statement of European Central Bank next week – they dumped 7 tonnes of physical gold (multiplied by leverage 1:100 for paper gold. That’s the only way they can make these takedowns.)

  • Mike September 25, 2009, 5:00 pm

    Seems to me that the recent sell-off in gold and silver is a message from the PowersThat Be to the wonderful folks at the G-20 summit not to worry, because they (the PTB) can still manipulate any market they wish to, whenever they wish to……..for the time being. It’s sure going to be fun….and profitable….when that time is over.

  • Rich I September 25, 2009, 4:58 pm

    Brilliant headline may prove prophetic over time.
    Reading the article precipitated this thought:
    There is a disconnect with floods of bank dollars going nowhere except to try to shore up Big Bad Bank Balance sheets with Treasury, Corp, Muni Bond and Big Stock purchases like Daddy Warbucks. (Recall BAC which bought the 1930s GG Bridge Bonds when no one else could.)
    The disconnect is with the People’s money: Shadowbank M-3 (shadowstats alt), slowed from 17% growth in 2008 to 4% growth now.
    Wall Street is flush with bonus Fed and taxpayer money, but hoarding credit, and Main Street is flat broke, trying to find work, save and survive.
    There may be one helluva hangover when the DC Boyz try to wean Wall Street off life support. (Today’s Ron Paul hearings may trigger this\: Auditing the Fed may prove the Emperor has no real cash or clothes.)
    NeoKeynesian solutions to keep the economy going when the consumer cannot, the spending wars on Afghanistan, Pakistan, Iraq and Illegals Infrastructure are falling and failing , evidenced by $BDI and DRYS down -51% and -58%.
    Who can afford CapTrade, Chinese tyres, or 0Care if they ever could?
    No wonder there’s a current flight to liquidity, if not safety, in dollars and Treasuries. This reflex defensive action may sink the SS USA, certainly if the Fed is audited with the House of Cards exposed for all to see. Can we survive another collapse of liquidity in panicked markets like 2008 with DC boyz in full denial in their Denali’s? Suddenly the 2 Million Man March in DC becomes a Bonus March pitchfork Exodus? No wonder DC is reluctant to bring our armed Farm and Ghetto Boys and Girls home from foreign occupations. To what? Homeland Security FBI ammo sales and prices doubled.
    Falling revenues, delayed budgets and higher taxes further contract Mrs Economy. They eventually close bonus bank proprietary trading desks, so far ignoring fundamentals and reality, trading so many deck chairs on the Titanic…

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3251493

  • richard dudley September 25, 2009, 2:36 pm

    Friday Sept. 25 8:34 EST
    Divergence in Shanghai Index versus Nazz will cause Nazz,S&P500,to CRASH starting TODAY!! Look back to Febeuary-March 2007 to see divergence. Same thing now.
    Rick Dudley
    Red Barron Trading

  • mario cavolo September 25, 2009, 7:35 am

    as you state “we have trouble understanding why traders would panic to exchange bullion for Treasury debt and dollar…”

    I’m completely confused Rick, as I am waiting for a pullback to buy some gold…here in China, I can buy bullion directly from my bank any day any time…and will do so on dips toward the 950’s…..but I thought gold was a hedge against instability…? the only answer that might be an oversimplication is that an “event” simply creates an excuse for a round of profit-taking….simply as always that smart money buys into weakness and sells into strength again and again…glad I noticed to do the affiliate program with you on my site, Cheers, Mario

  • Rich September 25, 2009, 5:47 am

    Right before the G20 meeting we get the NY 15 dollar dump at 10 am .
    The 10:00-10:30 NY dump seems to be a favorite time. Must be just before latte break.

    Is this really longs escaping or just more of the same manipulation games by the bullion banks. Seriously ?