Kiss of death for gold? | FT Alphaville

Kiss of death for gold?

This was the gold price on Wednesday:

To describe the move as “tanking” — we think — is fair.

It comes just days after the GLD gold trust officially dethroned the SPY (S&P 500) fund as the largest ETF by market value.

And a day after Gloom, Boom and Doom report author Marc Faber advised investors to keep their gold in multiple jurisdications because it wasn’t necessarily safe in the United States and that owning physical gold was preferable to owning a claim on gold via an ETF like GLD.

The question is… is this ‘le grand pop’?

In the bubble camp, Nouriel Roubini compared the gold price to the Nasdaq bubble on Tuesday. In “le pop” land, meanwhile, Dennis Gartman (CNBC pundit, fund manager and author of the Gartman Letter) openly declared — to the dismay of many goldbugs — that it was quite clear that a top had been reached and that he regretted not having exited at least 150 per cent of his long position (that would be shorting right? – Ed):

From Gartman:

We exited one third of our gold position yesterday and in retrospect we should of course have exited 150% of our long position, for the proper course of action would have been to sell gold short on the news of the margin increase in Shanghai, of the news of margin increases last week on the COMEX and on the news that the Market Vane bullish consensus number had hit 95%. But the biggest news of all in our opinion was that the capitalization of the GLD had surpassed that of SPY. This is classic, and it reminded us of the times past when the valuation of Japan’s Imperial Palace surpassed the valuation of all of California, and or when Petsmart’s valuation as a surpassed that of General Motors… or even IBM as we recall when the frenzy was it most frenzied.

We shall be told that central banks are buying gold and that that shall offer support and we acknowledge that fact and say “So what?” We will be told that gold is not a commodity but is instead a currency, and we’ll acknowledge that that is the thesis we have ourselves pushed and promoted, but again, “So what?” Once a top is made no sum of bullish news can dissuade the new trend from asserting itself. The public is caught heavily long; funds… large funds… sophisticated funds… funds that should know better… are caught heavily long and are now in a very difficult position, for their long positions in equities are deteriorating and their gold positions are now about to do the same.

We respect “reversals” for we’ve learned the hard way that not doing so is investing’s correlative to a carcinogen. We can readily imagine spot gold trading down to $1600-$1625 over the course of the next few weeks or even few months and as hard to believe as that might seem it shall do no damage at all to the long term health of the bull market. Such is the over-bought nature of gold that it could undergo a move of this magnitude and still remain bullish in the longest of terms.

Though, to be fair to the goldbugs, some have pointed out a remarkable coincidence with the latest parabolic episode in gold and the much talked about launch of the Pan Asia Gold Exchange on July 22. Though we ourselves can’t corroborate that gold actually began to trade on the exchange on that date.

Although the other big goldbug speculation is the following, via GoldCore:

Another very significant development for the gold market took place yesterday when an influential member of Germany’s ruling coalition, Ursula von der Leyen, said that Germany should follow Finland’s lead on Greece and seek collateral for loans from bailout countries and the collateral should preferably be gold.

Government officials and anonymous government sources were quick to distance the chancellor and her government from Ms von der Leyen’s demands but Merkel herself did not comment and did not reject the call. CDU finance spokesman Michael Meister said the call for periphery nations to give their gold reserves as loan collateral was a distraction. “The most important thing is that central banks retain independent control of their own gold reserves,” he said.

However, German officials were in full damage limitation mode. The maxim ‘never believe anything until it is officially denied’ may be appropriate. Germany is likely to push for European gold reserves to be used as collateral. The Deputy Chairwoman of the Christian Democrats is an astute woman and politician and knew exactly what she was saying. Indeed, she echoed other senior lawmakers who in May called for Portugal to consider selling their gold.

For now, at least, le big pop continues.

Related links:
Gold to go: The vending machine which dispenses precious metal – Guardian
Swiss Parliament to discuss gold franc
– Market Watch
Comex Alternative: Pan Asia Gold Exchange – YoutTube