Gold Price Update

I let up on the gold price posts for a while. If you followed the last few posts on the gold price, you would have seen that, as I mentioned, the gold price did finally hit 1360. It then pushed up a bit for a few days. I was going to write that it could mean that the correction might be over, but the push up seemed kind of weak, so I gave it a few more days. So now today we have the shove downward - 23+ points as I write this, down to around 1348. We'll have to see where the COMEX settles later today. That should tell us whether we're getting a stronger move down for the near term.

Again, we're just having some fun tracking the drama of the gold traders at this point. So here's some additional background to what's going on.

Traders have built up huge short positions. That means that every time the gold price tries to go up - as it has for a few days - they get killed. In fact, if you watched the price for those days where the price went up, you saw that most of the increase was due to the dollar going down. Traders with long positions (yes, they exist too; not everyone's short the gold market, of course) were taking profits. (Remember, that's what most traders do: they take short-term profits.) Meanwhile, the shorts look for any and every opportunity to push the price of gold down before they get really slammed. And it looks they're having their way today.

While all this goes on, there appeared a pretty dumb article in the Wall Street Journal talking about how gold isn't a good hedge against inflation. It was one of those negative articles written by someone who clearly has little grasp of what they're talking about. The one thing it said that I could go along with might be that you don't buy gold merely as an inflation hedge.

But let's not get distracted by that. The key point is that none of this effects the long-term thesis about gold. In fact, we very well may be going through the sort of January I was anticipating: a correction followed by the eventual rise in price in 2011. The only thing is, if a correction takes place in January that's any bigger than what we've seen so far, it can discourage people holding gold who really don't have any conviction behind their position. In that case, they'll end up selling. In fact, the shorts are really hoping that those weak hands do start selling so the shorts can make some money before they have to cover their positions. They really don't want to cover without making some money.

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