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.

 

74Comments
Dec 19, 2012 3:30AM
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You are all fools. Anthony is a genius compared to any of you idiots!
Dec 19, 2012 1:43AM
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"... 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 11:37PM
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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 11:00PM
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I will keep my silver eagles, Anthony.
Dec 18, 2012 10:59PM
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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 18, 2012 10:47PM
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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 18, 2012 10:39PM
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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 18, 2012 10:36PM
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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 10:23PM
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Hey, Anthony IS a good source for investing advise: whatever he says, just do the oppposite and you should be fine. ;-)
Dec 18, 2012 10:01PM
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Anthony and Mitt Romney have a lot in common... they will say something with conviction and then flop the other way a week later with equal conviction. The fact is-- with all the fiat currencies printed across the world (now north of $1 quadrillion) no organized investment is worth anything. There is someone with more false money who bought larger amounts and can sabotage it's price. I would (and do) only invest in something that cannot be bought in bulk or hoarded then hedged for sabotage. There are a lot of those commodities around. Millions painstakenly amass quantities and sell consistently and re-buy to keep demand and interest going. You can have all the degrees in business finance and administration your parent's money could buy, but if you don't have commonsense, you will be broke soon and expect to pay inflated prices for the barrels the world will have you over when you have stock in rock nobody is willing to buy.
Dec 18, 2012 8:28PM
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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 8:05PM
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There`s plenty of great stocks out there.There`s no need to waste your time

with gold and silver.

Dec 18, 2012 8:00PM
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I'm investing in lead. It's cheap and easy to use when riots start.
Dec 18, 2012 7:53PM
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     AS SOON AS SILVER HITS 50 IM OUT.

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