Time to take the other side of the long gold trade?

2 mins. to read

We can see that the last time expectations were as high as they are now for rising prices that Gold fell by almost 20% in a little under a month… Whenever the ship is loaded one way with expectations, watch out. 

Investors bought a total of 51.7 metric tons valued at $2.77 billion through gold-backed exchange traded products this month, the most since November, overtaking France as the world’s fourth-largest hoard when compared with national reserves. Should Bernanke not oblige in September or any time soon and Greek be ejected from the Euro – then expect Gold to fall and fall hard.

The Gold price has risen 6.5 percent to $1,665.43 an ounce in London this year and reached a four-month high yesterday and extending 11 consecutive annual gains. The  MSCI All-Country World Index of equities added 8.1 percent while Treasuries returned 2 percent YTD.

Billionaire John Paulson raised his stake in the SPDR Gold Trust, the biggest gold ETP, by 26 percent in the second quarter and George Soros more than doubled his holdings, U.S. Securities and Exchange Commission filings showed Aug. 14. Investors will buy 150 tons through ETPs this year and next, Barclays Plc estimates.

Gold closed above its 200-day moving average on Aug. 22 for the first time since March – traditionally a bullish sign but on many occassions it can act as a bull trap. The increase in prices and ETP holdings has yet to be reflected in speculative wagers in U.S. futures markets. Hedge funds and other money managers cut bets on a rally by 58 percent since the end of February, U.S. Commodity Futures Trading Commission data show. The net-long position fell 4 percent in the week to Aug. 14 and is near the lowest since 2008. This might be telling us that the “smart money” is also sceptical on the rally continuing.

Physical demand is slowing elsewhere, with sales of American Eagle gold coins by the U.S. Mint dropping 49 percent to 30,500 ounces last month, the lowest since April while Gold imports in India, last year’s biggest buyer, are set to fall as much as 50 percent in the September to December period from a year earlier, the president of the Bombay Bullion Association, said Aug. 21. 

Instead of taking an outright short on Gold, we have suggested a silver:gold pairs play that is working out nicely since we made the call. Click here (page 90) for more details on this trade idea –http://issuu.com/spreadbetmagazine/docs/spreadbet-magazine-v8_generic

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