Economy Drives Stake in Gold which Fell 12% over Week
Over the past decade, gold seemed like the ultimate investment. No matter what happened in world events, in the market or with the economy, it consistantly returned double digit returns for investors. That ended last weeek. Gold is down 12% in the last week. Silver is down 11% today. This is a loud and clear wake up call to Wall Street that all is not well in our economy.
On Friday, gold opened below the $1,550 resistance line which tripped a massive number of stop losses. That was just the beginning of the carnage. For the rest of the day the bulls and bears fought. The bulls twice put the bears on hold but Gold continued to trip other critical resistance lines including the ever important $1,500 line before coming to rest at $1,488 an ounce – a 5% loss. Today, we see a continuation of Friday’s action with even the $1,400 resistance line falling to the bears.
As you can tell from this analysis, momentum investors are dominating the gold market. Gold is becoming a different asset with a very different kind of owner. It still has very strong fundamentals. It’s value for manufacturing continues to increase. Yet since November, as we can see from the chart, key points of support and resistance have trigger gold’s price fluctuations rather than industrial supply and demand. This clearly shows the impact of momentum investors.
The events in Europe, like the recent bank account forfeitures in Cyprus, and the out of control spending and debt in the US are prime suspects. In turn, Analysts have downgraded gold. The failing economy is pointing the direction and momentum investors are driving the price of gold.
Is the shake out done? Will we see more gold selling? $1,500 was a very important line of resistance for gold. Since it gave way followed by $1,400 in such quick order, this gold reversal will prabably continue with other commodities following suit in random fashion. Oil is the most visible victim as we have seen at the pumps. Silver dropping 11% today was even more breath taking. The clearest advise is not to catch this falling knife. Don’t try to guess the bottom as it is the easiest way to loose money.
Why have commodities been falling while the US government has been printing money like it is going out of style? Most of us would expect inflation with a rising gold price. Instead, the bleak future of the economy has more impact on gold investors. If we do not see gold emerge back above $1,500, the market will be telling us to expect the economy will not be far behind.