Fool’s Gold Fantasy (GLD)

We’ve seen a good bit of writing lately on gold’s prospects in the face of the latest Greek drama and an expanding war on the Russian front, and frankly, we’re not impressed.

A great many seem to believe that higher gold prices are on the menu as result of the instability created by these two ongoing situations.

But it just ain’t so.

A Mental Problem

 

We’re not here to make fun of people with genuine mental conditions, or those with related disorders like anxiety, depression, etc. We’re often accused of being unstable ourselves, and we know how much it hurts – and we haven’t been diagnosed with anything!

[Yet.]

editor

Far be it from us to cast aspersions.

Rather, we want to point out that there is a certain willful desire toward self-destruction that’s plaguing the world these days and goldphiles apparently haven’t been spared the malady. In fact, it appears they’ve mapped out their own unique path to perdition.

The chart below shows how one rather enthusiastic gold believer views the shape of things to come for his favorite metal, and uses the Ukraine war to help him explain the fantasy.

He writes (on a rather notable website) the following bit of blather –

“As Ukraine’s socio-economic situation goes from worst to worst-er, today’s announcement by President Poroshenko that the government will take action to stabilize the currency has Ukrainians rushing for the exits into precious metals… with only one goal in mind – wealth preservation.”

The charlatan then produces the following bit of chartitude to ‘prove’ his contention that Ukrainians are now, like him, true believers in the shiny metal as the only reliable means of exchange and genuine store of value.

spotgold

Arse…

The chart shows the price of gold spiking in Ukrainian funds in the last few weeks.

The only problem is, there is simply no evidence here that Ukrainians bought anything, let alone gold. What it does, in fact, show is that the Hryvnia dropped in value against gold. Nothing more. And be sure: there is absolutely nothing significant that has happened here for gold investors to be excited about.

What?! How dare you mock the Kingdom of Gold!

 

Is it true, then, that not a single Ukrainian ran to buy gold with his devalued Hryvnia? No, sir; some might have. But those purchases were simply not related to anything represented on the chart above.

And to prove our point, we offer a second chart, below.

This is the same Hryvnia mapped against our own red, white and blue Yankee dollar for the last six months.

And whaddaya know –


usduah

Will Mr. Creative Charter now inform us that Ukrainians are

“…rushing for the exits into the U.S. Dollar… with only one goal in mind – wealth preservation.”

Isn’t that, after all, what the chart shows?

Clown.

Buffoon.

Hippie.

hairvut

The above two charts show the exact same thing, and we could reproduce the Hryvnia’s latest action against twenty or thirty other currencies and get the same result. Individually and severally, these charts indicate that the Ukraine has been taken over, in part, by a hostile foreign power and that its currency, already among the more flaccid moneys in circulation, just got limper.

The tape measure you use to determine how much limper makes no difference.

Full stop.

Greece the Wheel of Gold Lies

 

So with Ukraine, so, too, with Greece.

The potential for a Greek exit from the Euro and all the market damage it might cause has been on the front burner since just after New Year’s – January 25th to be precise, the day the Greeks elected a new government whose anti-austerity platform had financial markets wondering whether that nation of eleven million would honor its previous bailout pledges.

Along with that concern, of course, the gold bulls came a’running, touting the inevitable positive effect all this would have on the gold market and showing misleading, extrapolated data proving a wild upsurge in Greeks purchasing gold coins over the last few months.

As usual, however, the truth was otherwise.

Take a look at a six month chart of the SPDR Gold Trust ETF (NYSE:GLD), an excellent proxy for bullion –


gld226

As you can see, the uncertainty and risk inherent in the Greek political situation DID ABSOLUTELY NOTHING FOR GOLD. The precious metals have been in a slide from precisely the day polls showed the radical left Syriza Party would win by a landslide (blue lines).

Moreover, even if the facts were on the side of the gold bulls and Greeks were actually buying record numbers of gold coins, it’s still meaningless – a) because Greece has such a tiny population, and even a 100% increase in the amount of coins purchased is still a drop in the global gold bucket, and b) the number of coins purchased on an annual basis per capita in that country is so minute compared to vast global flows in and out of gold, that to expect a pickup in price is illogical in the extreme.


Even suicidal…

 

So much for geopolitical influence on the gold market.

Gold has been thrown under the bus, friends, and MACD just confirmed a bearish RSI read by submerging below its waterline late last week (black boxes). That means it’s time to kick, beat, cut and sell the fancy rock.

Anything but buy.

Many happy returns,

Matt McAbby, Senior Analyst, Normandy Research

See what people are saying...

  1. Gary Loest

    Greece and its problems have had no effect on the hopeful “bullishness prospects” for Gold. What happens in Greece, stays in Greece, and does not mean Jack Schmidt to the pricing of Gold. Watch the Dollar for directional signals when trading this metal…. this is where to get the better signals related to Gold trading.

  2. Charles

    I like to hold and touch physical gold and things made of it but as an investment I will wait for sub $1000 somewhere. In the meantime gold and their bugs are true to the characteristics of the metal per se; that is, heavy and dense, respectively.

  3. HMM

    Matt:
    You are missing the point…
    — which is not unusual.

    Gold is a “hedge” against sovereign default,
    — whether in the nation’s currency or its’ bond, or both.

    Nothing more; nothing less.

    Therefore, if you hold gold in $USD (US dollars),
    — it is almost irrelevant to discuss what is happening elsewhere.

    But, if you are a Russian, and you hold gold deposits calculated in rubles,
    — the near BK of the Russian economy, its currrency,a nd its bonds is very important.

    IOW, for someone like you (if you were a Russian back in 2010) and refused to buy gold,
    — becuase you felt you knew everything (but really didn’t)…what happened?

    What is gold trading at vis a vis the ruble?

    My take it is trading at about 74,000 rubles (as of February 26, 2015…up from about 32,000 in 2010….with a high near 90,000 rubles in the 2014-2015 time period.

    Nice try Matt….do your homework.

    PS….I’m not a gold bug

  4. John Szoke

    I agree in the short term. I have been selectively nibbling at some gold/silver miners recently, though I have hedged this position with GLD puts and ZSL calls. I have a feeling that within the next six months gold will put in a new low under $1000/oz. This for me will mark the beginning of a further bull run in precious metals, which will surpass the old highs by a good margin. Of course if gold goes through $1450/oz., then this little synopsis of mine is worth poop!

  5. Kevin

    Hey guys,

    I’ve been reading your emails for a few years now, really enjoy the humor and the insights on the markets. and, I commend you on your trade recs, that are usually profitable, while 98% of email/newsletters on trading/markets are not.

    Today’s email about Fool’s Gold was spot on. Pun intended. You guys have correctly forecasted the bearishness of the metal for a couple of years now.

    A few years ago, I made the mistake of going long GDXJ and averaging down. Yeah, I know, timing was off, didn’t employ stops, yada yada …

    Anyways, despite the reverse split and the total decimation of the miners the past few years, I have been fortunate enough to recoup a nice percentage of my loss by selling Covered Calls vs. GDXJ on Pops in the Gold price.

    Gold price pops for a couple of weeks, sell the leap Calls vs. GDXJ, wait for Gold price to recede, pocket the premiums!

    In fact, I have recouped thousands of dollars this way versus my shares of GDXJ. However, today, I am still left with at 300 shares, after split. I have already sold the Jan 17 $46 Calls at $4.20 and it’s currently trading below $3.

    All of that though does not negate the fact that GDXJ is still a losing position for me, as of today.

    My question to you guys – When the heck does Gold price pop for real. I am a firm believer in the worthlessness of the Fed’s and other global central bank’s QE programs. Inevitably resulting in the general populace finally one day realizing their fiat currencies are pretty much worthless. But, what will be the trigger for that to occur & when? Is it even possible to predict? Will Gold ever soar again?

    Regards,
    Kevin McGee

  6. Stephen

    Dear Normandy,
    Gold has better prospects than (anything but a buy). It is INSURANCE, in a currency world. And, Ukraine is anything but a taken over nation.
    People will always be buying gold. And, the price will go up, regardless of why.

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