Gold, silver under pressure in a broken market

Precious metals and related mining stocks are getting hammered.

By Anthony Mirhaydari Dec 18, 2012 6:59PM

Hundred dollar bills surrounded by gold - Anthony Bradshaw, PhotographerMarket shenanigans continued Tuesday, with various asset classes going vertical in different directions as the fiscal cliff negotiations in Washington seemed to hit an impasse. The market is so thin and broken right now, with retail investors in bonds or cash, that trading algorithms are feeding on themselves. It's ugly to see.


Many of the moves are contradictory. The dollar is lower, which suggests inflation. So are Treasury bonds. But copper is moving lower, suggesting slower economic growth. And gold and silver are being hammered, something that is typically accompanied by lower inflation and a stronger dollar.


I think the drawdown in gold and silver represents the best opportunities for profit in this volatile market environment.


For one, both gold and silver are knocking out major technical support. The SPDR Gold Trust (GLD) is dropping out of a two-month flag pattern and is now testing its 200-day moving average for the first time since March. Gold-mining stocks are also very weak, with the Market Vectors Gold Miners (GDX) threatening to drop out of its consolidation range -- a move that would put its summertime lows back in play.



The catalyst for all this appears to be a realization that cheap money stimulus out of the Federal Reserve just isn't an effective salve for the economy anymore. The credit channel remains too constrained. And with the Fed committing to pulling back if the inflation rate moves over 2.5%, they are starting to remove the specter of hyperinflation -- one of the primary motivators of gold and silver investors.



This is all happening in the context of very bullish sentiment towards precious metals -- suggesting a violent decline will be needed to restore equilibrium before prices can move higher again.


There's a lot of opportunity out there for nimble traders to snag some profits in this area. I'm adding new short positions against New Gold (NGD) and Pan American Silver (PAAS) to my Edge Letter Sample Portfolio. I don't know how long the drawdown will last. But it's strong enough that I want to trade it.


Disclosure: Anthony has recommended NGD short and PAAS short to his clients.


Be sure to check out his new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.



Dec 18, 2012 10:36PM
The safest bet is that the U.S. Government and Federal Reserve will do exactly the wrong thing, which they have been doing for the last 40 years. That is, spending too much money, and debasing the currency by printing too much money.

It will take some time for the market to figure out that the resolution for the Fiscal Cliff is just more kicking the can down the highway.

Expect Obama to continue killing jobs through Obamacare and raising taxes on everybody, not just the rich. Taxing the rich is just a pretense for raising taxes on everybody.

Anthony believes the Fed is committed to keeping inflation under 2.5%. Why not? Tis the season for believing in Santa Claus. Anthony hasn't yet figured out when politicians are lying. Hint: It's when their lips are moving.

Expect the decline in precious metals to be brief, just a short time until the market figures out the truth.

Dec 18, 2012 8:00PM
I'm investing in lead. It's cheap and easy to use when riots start.
Dec 18, 2012 11:00PM
I will keep my silver eagles, Anthony.
Dec 18, 2012 11:37PM

How, please inform us, is the Fed going to rein in the inevitable inflation without raising interest rates which will send the interest payments on the federal debt out of sight?  A few trillion more and its going to get ugly.


I know the article is directed to short term trading, but I am fearful of what's down the road.

Dec 18, 2012 10:23PM
Hey, Anthony IS a good source for investing advise: whatever he says, just do the oppposite and you should be fine. ;-)
Dec 18, 2012 8:28PM
This article has many sentences that make it seem as though Anthony doesn't understand what is happening, at all.  So his recommendation is a guess.
Dec 18, 2012 10:59PM
Actually today was a VERY important day in the metals.  Today we finally had a disconnect from the "investment" outlook on gold. The DOW went one way and GOLD went the other for the first time in months.  I said when we saw the first disconnect that if the Dow went up and gold down we were in a significant new movement away from gold.  We saw our first really strong sense of confidence in stocks and movement away from the PM.  Is this a bullish sentiment for stocks?   I wouldn't say yes just yet. My reason being that this in the longer term opens the door for another increase in Gold.  Depending on how far we may drop we could very easily outplay the true negative sentiment I feel we see in the longer term.  Today we are seeing the "players" attempting to not only ride the wave of QE4 but also give the apperance we are fine in the longer term confidence in stocks.  Is this just a confidence ploy awaiting the final "cliff" conclusion.  Buy on the rumor sell on the news is still the law.  Now my gut says no that we are still in for much "insecurity" and I still believe we have yet to retrench around 11,500 in order to regroup to break through 13,700.  If we break through 13,700 I now say let the PM be for a bit.  If we fail 13,700 and once again begin a fall the next stop for stocks will be 11,500 or possibly a bit less, then Gold has better than a 50/50 chance to break out again to 1800.   Neither of these"markets" are any longer pure in my opinion and much has been rumored about the contived price of gold over the last few weeks. Every month lately has required a new philosophy to try and understand what effects are at play. My gut now says hell no, gold is still a very "right" place to be.  JMHO
Dec 19, 2012 10:57AM
The only change in government that i see is higher taxes.  Actually reforming government spending? Forget it?
      It seems to me that our wonderful ruling class would rather take away from those who EARNED
social security and medicare than restrict the dependency classes who have NEVER done anything but parasitize the country, but are a stable source of votes. The rest of the people(ex workers) think and are therefore an unstable source of votes.

Dec 18, 2012 10:47PM
Anthony, Please do not give advice to anyone . They are much better off without it , Keep your advice to yourself and enjoy the losses !!!!!
Dec 19, 2012 1:43AM

"... The market is so thin and broken right now, with retail investors in bonds or cash, that trading algorithms are feeding on themselves. It's ugly to see. ... "


Does it imply that if retail investors (you and me) were participating in equities, then the "trading algorithms" (wall street and financial specialists) would be feeding on them (us) ? ... like a pack of wolves maybe.

The true ugliness is here indeed.


This is not going to inspire confidence for retail investors to join the party. Instead, it will reinforce the feeling that the system is rigged against them.

Dec 18, 2012 10:39PM
I wouldn't call it "Pressure." I'd call it a "Buying Opportunity."
I have to say that you hit the nail right on the head with this article.
And as soon as I google the word, "algorithms" and find out what it means, I'll read the rest.
Dec 19, 2012 10:43AM

We need to quit the scare tactics currently championed by the "Fiscal Cliff" talk. Letting the automatic features of the tax law and the automatic spending cuts that will happen is probably what we need to get us back on the road to fiscal sanity. Revenues that match spending. I'm a card carrying Republican, but I long for the days of the Clinton administration where taxation no only matched spending it exceeded it to a point we all most eliminated the national debt. Its time we as a nation bite the bullet and let the fiscal cliff take over.


Dr. Doug Connell

Business Chair at a local university in Ft. Myers, FL

Dec 19, 2012 9:19AM

Let's see: Gold drops but the Dow goes up ? Could it be that Christmas is in just 6 day's and we might need a little 'pocket change' for our making merry? Oh- don't forget the buying opportunity that now exist to maintain your positions. Gold is still a great hedge to protect yourself from the uncertainty in today's economy but you only benefit when you convert it to cash !


Is that crazy Akimoto back ? I've got my Christmas song out about him (all his personalities) ! We'll be sharing it later with you. (Don't laugh V L- I've got one for you too !)

Dec 18, 2012 7:53PM


Dec 19, 2012 7:34AM
charts are hind sight,the only thing for sure is the idiots in office are going to manipulate the market,to their benefit.
Dec 19, 2012 8:52AM

"The market is so thin and broken right now, with retail investors in bonds or cash, that trading algorithms are feeding on themselves. It's ugly to see."


I predicted the entire market would come to this state of affairs three years ago. But, contrary to my thinking then, watching hedge funds and day traders play with themselves isn’t nearly as funny as I thought  it would be.


"I think the drawdown in gold and silver represents the best opportunities for profit in this volatile market environment."


In spite of my past criticisms of some articles by Anthony, I do like it when I agree with him. I like it even better when I already did yesterday what he is recommending today.

Dec 19, 2012 1:45PM
Boehner wants to cut a deal so that is not going to be an issue, but I agree with Anthony that the market is not reacting to stimulus spending the way it did before.   When is this economic malaise going to fall on the shoulders of Obama?   There is no end in sight.
Dec 19, 2012 12:21PM

Boehner's plan 'B' is now rejected by the white house. You might want to reconsider keeping your gold investments for 2013; But if you have faith in our government to have a 'deal' done, go ahead and cash in.

Robin1620: I like all shapes and sizes; especially the ones in the GOOD electronics & Ferrari's (That one's on my 'wish' list).

Dec 19, 2012 3:42PM

Right now the best investment is guns, not gold, after the sad and pathetic massacre in Sandy Hook, will lead to stricter gun control,, it will not stop till every law abiding citizenship will be stripped of their guns and  a tyranny government rules that leaves us defenseless 

 The second amendment provided us protection from enemies outside the USA and within government against the people that they represent, with in the USA.

The second amendment wasn't for hunting rights.  But against government that is corrupt and not for the people!

Dec 19, 2012 3:17PM

We should have not gotten off of the gold standard, that measures all currencies!  All dept to foreign countries was paid by gold. Printing more money only leads to inflation and every country can do this.  With gold as a standard, it took care of more printing of fiat money!

Gold can tell a Nation what there currency is worth.

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