Gold has fallen below critical support levels, first at the 2015 low of $1,141 last week and now below the 2014 low of $1,130. In fact, gold flash crashed in early Asian trading below $1,100 briefly, the lowest level since 2010!
A confluence of factors are sending gold lower including:
– Greece reaching a deal with its creditors
– China announcing a modest increase in gold reserves well below expectations
– Chinese economic woes and diminished demand for metals
– Recent strength in the USD
– Increased bets on a FED rate hike this year
– A huge paper sell order in early Asian trading
Of course, the Greek deal is just a short-term stopgap measure. The Greek crisis will persist and other countries will face similar challenges with unsustainable debt levels. China is most likely understating actual gold reserves in order to keep prices of their USD assets high and prices of the gold they continue to accumulate low. Their economy is certainly in trouble, but the unprecedented amount of government intervention and stimulus will likely provide a boost. And the FED can’t afford to raise rates by a significant amount. The pace will be extremely gradual, if they are able to push up rates much at all.
ZeroHedge is also reporting that “someone” sold $2.7 billion notional in gold, resulting in a 4.2% drop or about $50 to just over $1,086/oz, the lowest level since March 2010. The fact that someone meant take out the entire bid stack suggests a not-for-profit seller attempting to force the sell stops. And they succeeded.
The price action today does not change my medium-term or long-term bullish outlook. But it does confirm the bearish signal that I sent to premium members this past week. We have reduced exposure to mining stocks and have succeeded in finding sizable gains in other sectors.
Bargain hunters may step in and cause a short-term bounce in the gold price. However, I now think we could see a test of $1,000 gold in the near term and may plan to hedge the GSB portfolio via an inverse fund. The odds of seeing 3-digit gold have increased substantially in the past week.