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A Wickedly Bumpy Ride for Gold Bulls

By Rick Ackerman Posted on May 4, 2012, 7:46 am EDT Last Updated May 4, 2012, 1:50 pm EDT

Crikey! Although we declaimed here the other day that gold appeared to be carving out an important bottom, getting airborne could be bumpy.  One reason we “feel” a bottom is near is that it has been relatively difficult to stay long in gold.  Getting aboard has been no problem, of course, since traders can attempt it at any time, albeit not always with confident expectations of success. And so it was early Thursday morning, when we put out a “buy’ recommendation in Comex June Gold in the dead of night, shortly before 5 a.m. Eastern.  The rationale was purely technical and involved placing a bid at the target of a corrective pattern we’d expected to reverse at exactly 1637.40 — $7 below where the futures were trading at the time. However, our Hidden Pivot support evinced no discernible bounce as the futures made a violently choppy descent toward an intraday low of 1631.30.  In the Rick’s Picks chat room, a subscriber reported having made a few dollar trading from the wrong side of the move, but this feat – catching a falling piano, so to speak — would not likely have been duplicated by any but the nimblest of traders.

So how much lower might we expect gold to fall before a bottom is in? Our guess, worst case, is 1574.30 for the June contract. Using Thursday night’s price of around 1637.40, that would represent a fall of approximately 3.8 percent from current levels. We say that would be a “worst case” target because gold looks pretty feisty on the hourly chart and could come alive at any time. Bulls have not ceded ground easily, and it would take a rally to just 1648.00 today  — $11 above current levels — for the good guys to regain the offensive short-term. Arguing against this is that Silver looks leaden. The July contract, currently trading for 30.115, looks primed to fall to at least 28.810, or 4.3 percent. Weighing gold’s positives against silver’s negatives, we’d bet on lower Silver prices in the days ahead. If Silver and Gold are both hitting their respective downside targets at around the same time, however, we would be aggressive buyers there, tightly stopped.

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  • mario cavolo May 8, 2012, 5:05 pm

    Well gang, speaking of tracking positions and Rich’s comment that the S&P is targetting 1800, I am now UPRO 3x long the S&P at 1347. We’ll see the next couple of weeks whether doomsday is really coming won’t we…Cheers, Mario

  • Avocado May 6, 2012, 1:54 pm

    If gold breaks down decisively below the current upward trendline, and fails to recover on high volume, then I predict the low could be in the $1100-$1200 range.

    Classical technical analysis, combined with the possibility of a crackup on the financial scene prior to the elections.

    If Obama cannot win on economic progress perhaps he can win if there is a crisis that says “Better to vote for someone you know than someone you don’t, even if both are equally clueless.”

    Andy

  • Rich May 5, 2012, 8:03 pm

    Aloha All
    We are at the half-way point of our WhistleStop America Tour, so issued an election economy market report available on our Campaign blog (click on name above)…

  • John Jay May 4, 2012, 10:06 pm

    Robert,
    It depends on the average age and maturity of their portfolio. If they actively manage and hedge their portfolio, they have made lots of money. For example the Thirty year contract has been bottoming around 115 since 2009 and running up to 135/140 consistently since then.
    Before that, from 2002 to 2008 it has held at 105.
    They would have to be the world’s worst traders to have lost money in US Treasuries in the past decade.
    As far as inflation consequences go, that is a small price to pay for the transfer of a huge portion of our manufacturing base, not to mention de facto tariff free access to the US market. Their huge reserves of US Dollars is a result of that one sided trade going on for decades. If the US Government had not thrown the American worker overboard thirty years ago, China would not have a surplus of US Dollars to complain about. You would think they would be happy to have gotten our manufacturing base with unlimited access to our markets. And, no, I do not believe in Globalization and Free Trade, because it has been a one way street, every country in Asia has erected huge tariff barriers to any US goods and agricultural products.
    All to benefit a few oligarchs.

    • Mark Uzick May 5, 2012, 8:04 am

      JJ, the transfer of the American manufacturing base is the life-line that has allowed American businesses and Americans’ productivity and prosperity to survive in the face of the criminalization of business activity, private property and domestic trade in the new socialist American empire.

      You, like many Americans, are proposing to fight the results of domestic socialism with more comprehensive international socialism, never thinking to question socialism, but always ready to blame free trade.

      That other countries engage in protectionism to enrich oligarchs is a problem for the people of those countries to solve through the gradual process of liberalization; there’s certainly no reason to emulate them; but if we care about our liberty and prosperity, we need to liberate ourselves from the stranglehold of socialism on both domestic and international trade, becoming, once more, a living example for the rest of the world to emulate.

      Competition and trade are mutually beneficial things; our prosperity does not come from trampling the hopes and dreams of others no matter how much relative power and status that some think that will give us.

      A free America will out-compete any oligarch ridden society, no matter how cheap their labor is kept or how hard they’re whipped to work faster (The belief that slave labor is more productive than free men would be laughable if it weren’t so sad.); and in so doing, will earn respect and friendship, becoming the template for world-wide reform.

  • Mario cavolo May 4, 2012, 5:12 pm

    What’s sadly amusing to me is how when a trader looks back at today’s severe swoon on the monthly and even weekly charts, the move in fact, is no more than a meaningless slight that wouldn’t draw anyone’s particular attention…ohh, only as it wipes away and obliterates the hard earned capital of traders who delusionally believe they can learn more for the next “next time” swim with the sharks…really incredible.

    • John Jay May 4, 2012, 7:44 pm

      Mario,
      I wonder why the Central Bankers in China are complaining about the US Fed money printing?
      It’s not like they are losing money on T paper they hold.
      In 2000 the 30 year bond contract bottomed at 90.
      It is now at 143^23
      In 2002 the 10 year contract was at 103
      It is now at 132^21, an all time high.
      I know oil and metals have all gone up, but they got the interest plus the appreciation, especially in the 30 year bond.
      I wonder how much Treasury paper China really holds other than what they say they have.
      Their gain has been at the loss of the poor US citizen trying to make a decent return on safe CD or T-bill money.
      Talk about a tangled web.
      Now the Treasury is going to issue floating rate paper.
      I bet that was the idea of the Fed member banks that have all that T paper on their books via the Fed.
      They must be getting nervous about the potential for a big hit in bonds like the early 1980s.
      Insanity, everyone is hanging bad paper at inflated prices.
      When will it end?

    • Robert May 4, 2012, 8:38 pm

      JJ-

      What do you mean the Chinese are not losing money on their UST paper? They are only maintaining the asset appreciation. The yields (and coupons) are not keeping pace with any/all flavors of US reported inflation (even the bogus CPI), and UST yields are WAY below Chinese inflation rates.

      The Bond market only needs one event to tip it over- no more buying. Selling existing holdings would only ACCELERATE what is coming, but even if every bond was held to maturity, while the buying of new issuance were to halt tomorrow, things would start looking real different, real fast…

      Floating rate paper is the final step in the final step to a truly level playing field between the Paper standard and the Gold standard.

      Once people have a choice between zero yield on paper/data, versus zero yield on an actual substance, well, you know the rest… I’m sure a lot will still choose the paper/data since blindly and implicitly trusting government officials is “what we’re supposed to do”

  • FranSix May 4, 2012, 3:37 pm

    The mining stocks will move when a massive sell-off occurs in long dated treasuries . Unless of course gold miners themselves take the initiative and hike dividends.

    The value in gold bullion will increase with a decline in short term rates, especially negative nominal rates.

    • Mark Uzick May 4, 2012, 5:00 pm

      Wouldn’t a sell-off in treasuries indicate an end to money printing; how is that supposed to help gold and especially the gold mining stocks that are so sensitive to market declines that would come with an end to money printing; or are you implying that longer term treasuries are not so affected by money printing as short and medium term treasuries are?

    • Bam_Man May 4, 2012, 5:08 pm

      The money printing stops dead in its tracks the moment a major oil-producing state says “no more paper accepted as payment”. But it certainly won’t stop before then.

    • Mark Uzick May 4, 2012, 6:32 pm

      Bam-Man, so your saying that they’ll just default on the treasuries and let the banks go under? Well I doubt it, but one can always hope.

      Unfortunately, it’s more likely that they’ll come up with another pretense for another middle east war.

    • FranSix May 6, 2012, 5:46 pm

      @Treasuries Sell Off

      I think that they won’t allow a rout in long-dated treasury prices, and will indebt the populace to a level not before seen to prop things up.

      Given that delta hedging strategies in use across all asset classes, including mining equities, and especially junior miners, gold miners are under direct obligation to their shareholders to deliver a robust dividend.

  • gary leibowitz May 4, 2012, 3:14 pm

    Gold and Silver are following the same consolidation as stocks are. If it is just a consolidation both will be taking off at the latest by July. I suspect stocks will initially outperform Gold since seasonality plays a part.

    I also wonder when the mining stocks will base.
    I might put into play the bullish case for both stocks and gold soon. The 3X ETF’s like NUGT might be on my radar.

    As for the EU we have some elections coming. Lets see how they play out. I expect most politicians that got strong-armed into this austerity package will be cast aside. Interesting to see how Germany and the EU react. I don’t think strong medicine to purge the evils of the old ways is a smart move. I still say there has to be slow but progressive moves to change the spending habits. While we sit back and demand severe restrictions, our own government has done everything in its power to prevent placing the screws on spending. They hope for a strong enough growth to slowly drive down debt. Our own reckoning will be by year end when the tax cuts expire.

    • gary leibowitz May 4, 2012, 3:48 pm

      Just like to add one important observation. I mentioned months back that the Saudis were helping this president by shipping an unprecedented number of oil barges to our shores. Couldn’t have timed it any better. The latest numbers show crude at a 21-year high in stockpiles, while demand decreased. Price dipped below 100 dollars today.

      If the usually high gas prices during the summer months don’t materialize than it will be a great boost to economic spending.

      The old saying “Don’t Fight The Fed” seems appropriate today. The wild card is the EU. How that goes is anyones guess.

  • John Jay May 4, 2012, 3:12 pm

    If people keep dropping out of the labor force the Unemployment Rate could be down to 4% by the Election!
    And the new CPI calculation method should be ready by then too, making a nice pair of ZIRP bookends, Zero Interest Rate to match Zero Inflation Rate! To be followed by ZURP, Zero Unemployment Rate. I bet those folks in the Euro Zone wish they had Ben B at the helm over there!
    We’ve got it made!

    • Robert May 4, 2012, 9:23 pm

      no joke JJ…

      All I saw scrolling across the bottom of the screen all morning was WOO-HOO! 8.1%!

      The unemployment rate is a farce when the “employable, but still jobless” factor is not included in the metric at all.

  • Kevin May 4, 2012, 2:28 pm

    The house wins the vast majority of the time. It’s so manipulated in the paper market that it’s like going to the casino. Not sure how you are going to win when the government changes/makes up the rules as the game goes along?

    Interesting times I guess you could say.

  • Buster May 4, 2012, 12:40 pm

    The biggest story conspicuously not in the MSMedia is the silent exodus out of the petrodollar scheme by nations who are looking for a better global system of exchange. I’ve heard of the figure of 1$ Trillion in alternative deals having already been set up by such countries as Japan, Russia, China & many others. Gold is being seen as a possible alternative. I don’t think it can be overstated how significant this threat to TPTB is. Heck, in the past we have seen that no sooner have nations talked of not using the petrodollar than they’ve found themselves with the giant cross-hairs of the War Against(Of) Terror aiming at them!
    The battle to destabilize the alternatives, even Gold, is ongoing & is one of the biggest elephants in the room, no doubt. TPTB will try to make damned sure they are in control of whatever the global medium of exchange is. Any other mediums than their monopoly would shine the very bright & scrutinizing light of a free market on their system, with choice creating competition whereby they may have to clean up their act. Bullying is so much easier, especially when the unwitting sheeple are doing all the fighting for them & even made to foot the bill!
    Whatever happens to Gold, I hope that with Ricks’ help the most that any here need to worry about is the return of Divergent Opinion!

    • Buster May 4, 2012, 8:52 pm

      I think my use of the ‘DO’ word was enough to hold my comment up in the moderation system the whole day. I really shouldn’t have dared use it, I know. I’ll not do that again, I promise!

    • Robert May 4, 2012, 9:18 pm

      Buster-

      I agree that the past reaction to any indication of rejection of petrodollars was war, but I think the tide may have turned just a little too strongly this time.

      As countries began moving against the petrodollar, the US and Israel naturally ramped up the Iran threat, and also cranked up the Syria rhetoric. Russia put their foot down on Syria, and the US walked away from the negotiation table on the NATO missile
      defense project. Now, I’m only speculating that the US position with Russia was “we’ll come back to talk as soon as you back down on Syria”, but Russia is actually cranking it up even higher now declaring that the US will return to talks on the Europe missile shield, or Russia will not rule out attacking the sites directly.

      When was the last time Russia had the stones to publicize possible aggressive military intent against NATO…? I’ll give you a hint… Nikita Krushchev.

      Doesn’t everyone here get it? In the final historical playbook that possibly (but hopefully not) ends with WWIII, the United States is being cast in the part of the global imperialist bad guy… and the guy with the empire NEVER wins.

      The US is long past the point where we can maintain global economic dominance, let alone achieve global military dominance (the use of nukes not-withstanding)

      The capital of our latest “hero” generation has already been wasted in Afghanistan, Iraq, and, more tragically, lost to a remarkably and disturbingly large increase in the military suicide rate. (google it)

      There will be no WWIII overseas. There will only be the US learning how to be a good global neighbor, or there will be a US that slowly loses even the ability to defend her own shores.

    • Buster May 4, 2012, 9:34 pm

      Yes, I think you’re right there, Robert.
      This chapter in the game is almost up, by the looks of things. It’s run it’s course & looks to be nearing completion. No doubt we’ll see some more twists & turns as the snake wriggles, though, & further on I see some nasty surprises coming.


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