On the heels of the 2 minute $50+ plunge in the gold price, today one of the greats in the business sent King World News a fantastic piece predicting a violent reversal in the gold market as available physical inventories of gold are disappearing. Fred Hickey also weighs in on the gold plunge, plus a remarkable bonus Q&A that covers the gold smash and much more.
By Bill Fleckenstein President Of Fleckenstein Capital
July 20 (King World News) – Overnight the financial markets were largely uneventful, though that wasn't the case for commodities (more about that below). As for our stock market, the early going saw the indices modestly higher, with the high-priced (i.e., valuation, not absolute), momentum-oriented, "growth-y" sorts of names driving the Nasdaq.
The early strength led to a bit more and the Nasdaq gained about 0.5%, with the Dow/S&P lagging until the last hour, when the rally fell apart and the market closed flattish. Away from stocks, green paper was mixed in rather dull trading, oil lost a percent, fixed income was lower, but, as I noted, the real action was in the commodity complex….
Continue reading the Bill Fleckenstein piece below…
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It all started last night about dinnertime on the west coast, when the price of gold literally dropped from approximately $1,130 to $1,080 in one trade, in one minute (I happened to be sitting at my screen and saw it in real time), with the next just over $1,100. From there, gold bounced up to $1,118 or so and then spent the rest of the evening and today between $1,100-ish and $1,118.
Obviously, whoever chose to sell did so with the idea of moving the market, and they were successful. At some point this sort of selling to affect the price will no longer work because the price is too low and it will reverse, and we may be very close to that point given the absolute annihilation in the miners and this latest stretch lower in gold. Through midday, of the precious metals, gold was the worst, as silver reversed its losses (after having suffered a similar "line job," dropping from $14.90 to $14.50-ish last night, or roughly 3%), and platinum erased a nearly $50 loss as well.
Au Contraire
As I watched that halfway through the session, it wasn't really clear if the other metals were finally suggesting that this was overdone, or their bounces were noise and the gold decline was indicative of more pain to come. (Looking at the copper market, it too recovered its small loss.) In real time, the gold market appeared to be the odd man out, given the fact that it had recovered little of its walloping, ex the one piece of the move between $1,080 and $1,100, which only lasted for a few seconds, while other commodities fared better.
However, as the day wore on silver, platinum, and copper rolled over to sport losses, though they still outperformed gold (which lost 3%). The day was another ugly one, as most of the miners lost 10% or so (while Barrick Gold lost 20%!). The selling has been so extreme and lopsided that it would seem it ought to be very close to ending, but thus far weakness only precipitates more weakness. At these levels, any sort of constructive action could signal the end of the rout and I continue to be on red alert for just such a signal.
Included below are two questions and answers from today's Q&A with Bill Fleckenstein. The questions are from his subscribers and they get to read Fleckenstein's answers every day.
Bonus Q&A
Question: Bill, I am a little stunned by last night's action in the gold markets, as I am sure you and most of your readers are too. As we keep getting anecdotal evidence from people like the futures expert you described in a Daily Rap several days ago, the shorts on precious metals are clearly "out of control" — and yet despite that extreme in sentiment, price movement, duration, shorts, etc., we still get a night like last night and a day like today that is as if the shorting has just begun. I think it's obvious at this point that the gold market can only recover when the daily smashings end.
In your mind, do you envision how these bear raids actually come to an end (in other words, how do you foresee events that would stop the raids from happening) and the precious metals market is allowed to function again? If so, can you please share? For example, if the equity markets start to fall and hints of QE4 start to swirl again, which is what many of us are waiting for, what is to stop someone from shorting 25% of the daily volume (or whatever it was last night) two minutes before the Chinese market opens, as he/she did last night?
Thanks so much.
Answer from Fleck: "They get away with this because the market is poorly regulated AND it has been a bear market and they help keep the momentum going. At some point (which we may have reached), they will overdo it. When the trend and price action changes, those same "algos" will do the same sort of stuff on the upside — at least that is my hunch."
Available Physical Gold Is Disappearing
Question: My son went to buy some 1 oz gold eagles this morning (7/17) and his source is sold out. Had to pay and wait for delivery, limit 7 coins and was charged $60 over spot price. This is in St Louis. Dealer said he's been selling a lot of gold.
Answer from Fleck: "I'm not shocked to hear that, thanks."
Question: Hi Bill,
Little bit scared with the action in gold/miners. I have manageable positions and can live without that invested money for years. But it feels like nothing is working my way in last 3-4 years. I did not invest in real estate or stocks, so lot of cash and gold/miners. Everything I own is going down and what I don't own is going up. Little bit scary.
Answer from Fleck: "Every single smart investor friend that I have, who each have been extremely successful over the last 30 years, feels exactly as you do. It doesn't make it less painful, but you have a lot of smart/successful investors as company in your feeling. Hope that helps to some degree."
Now In The Give Up Phase As Gold Bear Market Coming To An End
Question: Fleck, Fred Hickey noted the following on his Twitter account on Friday: "I'm not going to change my position on gold just because some levered paper (futures) pushers try to drive prices lower every day at 8:10AM."
I was pleased by the recognition of this market manipulation, regardless of who is responsible. It seems that every time bad news hits that could excite a run in the gold price (such as the Greek default), the same thing happens: huge short selling depresses the price around 9 am in New York.
I asked this question before, but I would like to raise it again: if the futures market dwarfs the physical market (and indeed physical gold is hard to find in many locations), why can that manipulation not continue indefinitely?
Your column is an island of sanity in a world gone mad…
Answer from Fleck: "It can't continue indefinitely. At some point the guys who are short will have pushed the market too far and then there will be a violent reversal. We haven't hit that point yet, but we could be close. FWIW, the futures market matters more in the very short run, but the physical matters most over time." ***To subscribe to Bill Fleckenstein's fascinating Daily Thoughts CLICK HERE.
***KWN has now released the extraordinary KWN audio interview with John Mauldin, where he the chaos in China and Greece, what to expect in major markets going forward, what surprises are in store for the rest of the year and much more, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***KWN has now released the incredibly powerful KWN audio interview with Stephen Leeb, where he explains exactly how China is concealing its true gold holdings, where the gold is being held, what the Chinese are really up to, how it will impact the gold market, what surprises are in store for the gold market and much more, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: Governments Leading World To Economic Collapse And Chaos As China Increases Debt $20 Trillion In Just 8 Years CLICK HERE.
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