The funny thing is, that's the question I keep asking myself more and more as I continue trading futures... gold is one of the instruments I just can't seem to get a grasp on, along with oil. As we say in Singapore, two makes for a company, three -- a crowd. I'm in the same boat as you
Gold has been trading on expectations of future "money printing." Part of the price (who knows how much) has been based on expectations of another round of quantitative easing from the Fed. Bernanke's testimony the other day suggested this was unlikely, so traders rushed for the exits. Price will presumably reset now to remove the "QE3 premium."
This is one of the things that makes gold difficult to trade: it's based on beliefs about what players like Congress and the Fed and the ECB will do in the future. You have to have an idea not only of what these players will actually do, but also what other traders are expecting them to do.
My own view (just a guess) is that most small traders will be caught completely off guard when gold's bull run ends. A lot of traders have been convinced that gold never goes anywhere but up and all dips are to be bought. That should set the stage for a large decline once momentum shifts and all these traders are caught underwater.
Gold is not done IMO. Nothing has changed in the world - the debt is still there, and growing, along with continued dilution of currencies, be it through CB's accumulating balance sheet debt, or money printing. And if it gets wiped out by anything other than genuine economic growth and incredibly prosperous times, gold has only 1 direction to go. Not to mention, CBs are not accumulating it to dump it at lower prices.
In terms of that $100 drop, here's the scoop on it. Full original here; all content below.
Probability of central bank intervention against gold rattles Gartman Letter
Submitted by cpowell on Fri, 2012-03-02 15:28. Section: Daily Dispatches
10:20a ET Friday, March 2, 2012
Dear Friend of GATA and Gold:
This week's counterintuitive smashdown in the gold price has not only brought a couple of gold fund managers to the point of wondering aloud about market manipulation by central banks:
Now even the dean of commodity market letter writers, Dennis Gartman of the Gartman Letter, is wondering aloud, even as he says he doesn't want to talk about it. His rattled comments from today's Gartman Letter are appended.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
From The Gartman Letter by Dennis Gartman
Friday, March 2, 2012
Moving on to the gold market, we remain bullish of gold in yen terms, and having made that statement yet again, we note something wholly out of the ordinary on our part: the prospects that something manipulative and perhaps even nefarious took place Wednesday in the gold market.
The market's plunge may not have been solely the result of pure market forces, but may have been the result of a very real effort to "manipulate" the market lower ... perhaps on orders of a central bank hoping to break the market in order to buy gold more cheaply after the surge of selling, or perhaps on the order of a government wishing to drive gold down for the "optics" of weaker gold prices.
We are not given to the belief in manipulation and indeed in the past have spoken against that possibility, risking being taken to task by the folks from GATA and the like. (Again, we wish to say quite clearly that we are great friends with GATA's founder, Mr. Bill Murphy, and shall always be so, looking forward every few months to raising a toast with Bill at meetings we are fortunate enough to attend together. However, it is GATA's rank-and-file that cause us the greatest concerns, to the point that several had made rather stark threats against us which we found both amusing and disconcerting.)
However, a note we received yesterday from a very longstanding friend and client of The Gartman Letter caught us off when it raised the very real possibility that something untoward took place Wednesday morning. Our friend, whom we've known for years and is not given to such speculation but who is at the center of such events, wrote:
"Dear Dennis, hope you are well. Regarding yesterday's action in the precious metals, I have a different take on this than you do. As I have very intimate details of yesterday, I think it was indeed official selling. At the London fixing, an order came in to sell 3 million ounces of gold and it was explicitly ordered to be done in just a few minutes. No investor or speculator would 1) handle it this way and 2) do it at the fixing only.
"This [has] happened this way three times in the last year, yesterday being the fourth time. Ben Bernanke had done nothing yesterday to trigger this the way it happened. I [have done] this now for 30 years and this was no free market yesterday. We will find out one day."
We offer this explanation as it stands, but certainly it has our interest piqued. It may be idle speculation on our friend's part. It may even be wrong. But certainly it is interesting and worthy of some consideration. We shall leave it at that and we wish not to comment any further ... to the press, to clients, or to anyone else; nor shall we.