The golden ticking time bomb
Depending on whom you ask, the precious metal is either about to collapse or is on the threshold of a massive move higher.
By Marc Courtenay
Gold bugs are on life support and those who've hated gold (-GC)as a "barbaric relic" are gloating. No one seems ready to call the bottom for the precious metal's decline either.
On Friday, the end of the second quarter, gold fell to as low as $1,179.40 an ounce, the lowest price in three years before settling at $1,223.70. Silver (-SI) rallied off a bottom of around $18.35 on Thursday and moved up 5% Friday to around $19.47.
On Monday, gold moved up $32 to $1,255.70 an ounce. Silver hit $19.58. Silver-streaming company Silver Wheaton (SLW) closed Friday up 7.5% at $19.67 and reached $20.17 on Monday.
The golden version of SLW is Royal Gold (RGLD), which closed up 4.5% at $42.08 but moved up to $43.95 on Monday. Even the badly battered Market Vectors Gold Miners (GDX) ETF, which just a few days ago hit a new 52-week low, popped 7.5% to $24.49 during the last trading day of the second quarter and an additional 40 cents to $24.89 on Monday.
Standard Chartered analyst Daniel Smith recently put the gold quandary into perspective with some relevant comments: "Gold has been battered by the Fed's policy stance, while the change in U.S. real interest rates, which have turned positive in June, has become an element disproportionately negative for gold relative to other commodities."
That's why analysts like him believe the next support level for gold is lower than Friday's. Smith publicly stated that the "next short-term target stands at $1,160, but I think prices will be higher at the end of the year than they are now as the market starts to price in that the Fed's language will unlikely change from now on."
Let's take a look at the descent that SPDR Gold Shares ETF (GLD) has experienced in the last 12 months.
In just the last three months we've seen GLD hit two bottoms, rally and then fall to new lows. Friday's rally might be the long-awaited "bottom" or just another head fake higher.
There are many reasons to think the latter. Yet, like many great buying opportunities it always seems to look darkest before the dawn and bleakest before the blast-off.
It's also reasonable that an investor believes that the bigger investment theme isn't the physical metals but the incredibly undervalued mining stocks.
That's why I want to look at a one-year chart of GDX to see if there is a pattern of price movement that might give us hope that the bottom is in place or very near.
Holy guacamole! This looks strangely similar to the GLD chart. I can't see any reason to feel certain that the miners couldn't keep plunging, even though I admit that Friday's upside volume for GDX was almost three times the three-month average daily volume.
So if you're looking for tremendous upside potential, you've probably come to one of the most promising sectors. The only big question is, when to pull the trigger?
My experience and costly lessons learned say don't be greedy, be willing to wait until the uptrend is firmly established even if you miss the first 20% or 30%.
One more thing: The cure for gold's and silver's falling prices are falling prices.
As producers cut back production and the price per ounce gets too cheap for new exploration, the supply will suffer. Buyers will say, "If I liked gold at $1,900 I love it at $1,200 or lower" and the demand will rise to meet the falling supplies. It's a recipe for an eventual new boom.
At the time of publication the author was long shares of GDX, RGLD, and SLW.
More from TheStreet.com
Can't eat it, can't make change with it. Gold is a hedge against inflation and uncertainty. Unfortunately, many buyers of gold in the recent past did so in anticipation of a financial Armageddon, urged on by all the shills on TV. If that were to happen (highly unlikely), gold wouldn't keep one alive, bullets and survival skills would. Those folks are beginning to realize this and contributing to the sell off.
Don't buy into the notion that $1200 gold is too cheap for mining. It was mined plenty when it was $35. Wait 'til all the suckers clear out and buy at $800 or less.
I think that the reason there is so much dispute on the direction of gold is that you have two conflicting scenarios.
If the Euro collapses, then central banks in Europe may flood the market with gold, driving down the price.
If central banks continue to print money and the Euro does not collapse, then gold may, as Peter Schiff says, "go to the moon".
Either way, the direction gold's price will go is not a function of which will happen, but is a function of what the big money and central banks believe will happen.
Purchased my first 100 ounces in 1995 at $256 per ounce and haven't bought any since it went above $600 per ounce - can't wait for it to hit $600 again to scoop up more. I'd rather have a million bucks in gold than in Obama dollars.
Hmmmmm; Isn't that Silver Bullion that the guy is holding in his hands....??
ON THE ORIGINAL ARTICLE COVER PAGE.
And Gold was up $25 per, early on today....wooohooo, we be a coming back.!!!
Therefore, you are looking at the next great bubble - ALL PAPER
If that 100s of trillions in currency gets a faith loss, just see if anyone will accept any of it for gold or much of anything else.
The Mother of all Crisis is a Currency War against the U.S. Dollar and this gal tells of how the BRICS are doing this now .
WORLD BANK EXPOSED!!! WHISTLEBLOWER Former Senior Counsel Karen Hudes TELL IT ALL!!!
Whistleblower Karen Hudes [Pt.1] Corruption / World Bank Exposed
Gold only went down 27% last quarter.Buy gold and watch it go lower.The gold saps
will always be pushing gold.The guys on TV keep getting rich pushing it to saps who
arn1t smart enough to buy good stocks.
it's going to go higher and right before the small investors get around to selling and taking their profits, it's going to tank.
End result, it's going to tank just when all the small investors have the most money in it just like everything else. For some reason the banks and brokerage houses are always on the right side of these situations, and the small investors lose everything. You would almost think the banks, the brokerage houses and the rich politicians had inside information. Oooh, wait, THEY DO!
I've never understood the "hoarding of Gold", except maybe in sellable Jewelry, because of other uses...
Just seems if you never sell any of your Gold and take profits occassionally...;
What is the reason to buy it on speculation to begin with..??
Small amounts maybe? But I'm not sure most of our kids or g-kids want the headaches of dealing with it....Unless maybe you are filthy rich, and have nothing else left to invest in.
Silver about the same.
Copyright © 2014 Microsoft. All rights reserved.
As the market wades through what many people hope is a sixth bull year, some have grown nervous about how long the run can go.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.