Friday, September 23, 2011

Is gold flashing deflation? + Technicals on $GC_F

One can not ignore gold's decline post-FOMC. Many will say that it is all due to cash-raising activities by hedge funds, who are being battered in equities, commodities, and currencies. I have a slightly different thesis - deflation.

I have been saying here for months - there is no inflation anywhere:

1. Energy inflation scares we had earlier in the year are gone.
2. All other commodities, especially metals, are falling through the floor.
3. Govt reports show stalling of inflation on wholesale and consumer levels.
4. Yields on treasuries are lowest on record.

Gold does not do well in deflationary environment. It will not shine until Fed returns with QE3. If it bounces here on buying interest due to technicals - 100 dsma is @ 1637, I would not be surprised to see a sell-into-rally mentality to establish quickly. Late longs, suffering from break-even disease, will be selling 1700 - 1750 levels: between 8/25 low and 50 dsma respectively. Central banks' buying will probably support precious in 1530 - 1580 range: between 200 and 150 dsma respectively. Hence we will have a trading range at best: 1530/1580 - 1700/1750.

UPDATE Sep 26 @ 9:43 am edt
Gold traded down to 1535 in overnight session. I expect a retest of that level to hold, even if it gets breached by 5-10 points or so. This was a breath-taking decline in a matter of just a few sessions. Consolidation will be name of the game from here on - choppy, trendless, range-bound.


  1. Deflation having that much impact in 2 days? I don't think so. The only thing that will impact the price of gold so dramatically is heavy and sustained institutional selling.

  2. Have been to the supermarket? Food inflation is here.