Nothing Precious About It (GLD)

 

Just a few facts to begin:

 

  • In the last seventeen trading sessions, gold (NYSE:GLD) has fallen 9%.
  • In the last seventeen trading sessions the miners (NYSE:GDX) have fallen 20%.
  • And in the last seven trading sessions silver (NYSE:SLV) has fallen 10%.

 

1

 

And what do we make of that?

 

Well, to start, those are hefty drops that pull all three securities well below their moving averages. In the case of gold and the miners, a mere half percent lower from here would bring both stocks to new bear market lows and very likely trigger a (final?) tidal wave of selling in the precious metals.

 

We’ve said it before many times. We don’t believe the bear market for gold and her handmaids is over. A look at the volume on GLD speaks for itself. Have a peek –

 

2

 

This is five years’ worth of chartitude for The SPDR Gold Trust ETF (NYSE:GLD), from just prior to her all-time highs at 186 to the present.

 

What’s most glaring here, and what every sane investor should pay attention to, is the complete lack of trading volume at present. At the top, in mid-2011, weekly trade was in excess of 90 million shares. Today, it’s just over a third of that figure.

 

To put it bluntly, it’s clear there has yet to be what’s referred to in the industry as a ‘selling event’ in GLD, the largest bullion ETF on the planet and the very reason gold flew toward $2000 in the first place.

 

The ‘very reason’? Whaddaya mean?

 

With the advent of bullion ETFs, the general public had its first opportunity to dive into the precious metals market en masse. And once the propaganda and marketing machines got working, the public fell into the gold race like obedient soldiers, buying and then buying more until there was no one left to do the buying. Sometime in August of 2011, the last good soldier flashed a big toothy smile, made his purchase and the game was over.

 

Gold has fallen nearly 45% since then and, as the next chart will demonstrate, now looks poised to fall even more.

 

Here it is –

 

3

 

This is the last six months’ worth of GLD, and as you can see, we’re but a hair’s breadth above July’s bear market lows of $103.50 (green line).

 

What’s even more worrisome for the bulls is the MACD indicator (at bottom, in blue), which just yesterday fell through its midway waterline, confirming RSI’s fall of three weeks ago and offering technicians a full-blown sell signal on the stock.

 

Make Preparations for a Golden Funeral

 

There’s proof from other quarters, too.

 

Consider the dollar. Over the last four weeks the buck has shot higher in response to a number of catalysts both foreign and domestic, and now sits once again above all her moving averages – just a wince below her bull market best of 100.39 (see chart below).

 

That’s not a fact to be trifled with. Not only because the dollar has a strong negative correlation with gold, but because dollar strength is the single most important factor in drawing foreign funds into U.S. equities today.

 

Now take a look at the buck –

 

4

 

This latest pop higher puts the dollar at its highest level in seven months. And should it manage to climb above 100.39 we’ll be trending at our highest levels since June of 2004.

 

As far as we can tell, that’s an inevitability. In a world chock full of outright pathetic currencies, the dollar is simply the pig that took a bath. And that should be enough to keep it ascendant, particularly when Europe is sinking under the weight of an immigration crisis and its own perennial debt troubles, the commodity exporting nations are wallowing in a funk, China is cutting interest rates and Japan engages in what feels like another bi-weekly government sponsored stimulus program.

 

5

 

And let’s not forget the Fed, which everyone expects to hike rates in the next quarter. It’s all bullish for the buck.

 

And a smack in the head for gold.

 

The Trends Are Clear

 

Since last week’s employment report the buck has been moving strongly and the general economic outlook, according to Wall Street strategists, is also constructive. That should lead to increased cash flows to the American market, and it’s unlikely they’ll be moving into bonds. A rising rate regimen is not one that attracts great interest, and at the short end of the curve, there’s essentially nothing on offer.

 

Most of the new money arriving to these shores will find its way into the sexiest issues of the market, driving the NASDAQ in particular higher, along with the most talked-about issues on the Dow.

 

Our feeling is that today’s best bet lies in a long/short pairing of the most sought after NASDAQ bunnies with now tarnished gold.

 

But before we get to the trade, have a look at a chart that shows action from both sectors going back a year and a half.

 

6

 

The chart is convincing. The latest negative correlation between the NASDAQ and gold is not a chance occurrence – it goes back much further than the last few weeks. In fact, it’s fair to say, perhaps, that gold has now become the anti-equity.

 

That’s why we’re trading it.

 

This Week’s Initiative

 

We’re pairing the poster child of the current bull market, Facebook (NYSE:FB) – now a bruising NASDAQ heavyweight – with the dust of the earth, gold. It’s a trade we’ve been successful with before, and we believe the time is right to fire it up again.

 

And here is how we will make money off of it:

 

[mepr-rule id=”994″ ifallowed=”hide”][mepr-unauthorized-message][/mepr-rule]

[mepr-rule id=”203″ ifallowed=”show” description=”wall_street_elite_members_only”]

Wall Street Elite recommends you consider buying the GLD March 99 PUT for $2.12 and selling the FB March 92.5 PUT for $2.29. Total credit on the trade is $0.17.

[/mepr-rule]
[mepr-rule id=”988″ ifallowed=”show” description=”executive_lounge_members_only”]

Wall Street Elite recommends you consider buying the GLD March 99 PUT for $2.12 and selling the FB March 92.5 PUT for $2.29. Total credit on the trade is $0.17.

[/mepr-rule]

 

With kind regards,

 

Hugh L. O’Haynew

Share your thoughts...

We encourage people to join in on the discussion. Please keep in mind however, that all comments are moderated according to our comment policy, and all links are nofollow. Let's keep the conversation professional and meaningful.