Thursday February 28 2013
The month end collapse of gold, the inability to hold the gains of the last few days, and the suggestion of poor future gold prices given the poor performance of the mining stocks caused John Murphy today at Stockcharts.com to suggest that the 12 year rally in gold and silver has ended. Among other things he showed a graphic similar to the one I showed this past weekend. His was a ratio chart of the Dow INdustrials to gold. We showed the SPX to Gold, hmm was John reading TMP?
At any rate again the stock indexes are now clearly outperforming gold.
One reader suggests gold had a fourth wave with a fifth to follow. Most chartists peg support at $1525 for gold. I would note the 200 week Moving Average however is al the way down at $1400. And given the strength of this move I would expect gold to over shoot that.
The story seems to be that QE programs by other governments have blunted gold as an alternative currency. And the US Dollar continues to strengthen so gold is priced lower in dollars.
It may be that gold eventually recovers but this feels a lot like the metals markets after the 1981 high. On each dip the gold bulls were sure that was the bottom and the bull would be off again. Sometimes it is best to simply exit a market and watch.
Regular readers will rememember our sucessful call of a top in commodity prices and gdxj last Sept 18 when we exited numerous profitable positions. Our error was re entering. We also said that given the danger of a multi year stock market top, it might be best to simply stay out of the markets until we have a sign of a top.That is turning out to be good advice. Investing involves the chance of error. Here at TMP the difference between ourselves and others are that we admit them. As I have noted my big error was in not realizing I was right and others I were reading were wrong, listen to self next time! Clearly a short position would have been quite profitable.
It is hard to see how gold will not be of value in the future given the enormous money printing schemes around the world. But for now sentiment is low and gold continues tofall.
As the saying goes, the markets can stay irrational longer than one's money can hold out.
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