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Strong

The big secret behind gold's $100 collapse

The question many investors are asking themselves today is, just what happened to the price of gold?

Did the world change? Did the problems in Europe go away? Did all the states manage to find funding to cover their deficits?

No, none of that happened, but gold still dropped $100.

It's all about market perception and timing, two things we've talked about many times before on the Trader's Blog. I don't know about you, but I remember when gold was over $1,400 an ounce and all I could see on TV where ads from gold companies extolling the virtues of buying gold as it is real money. Since the fall, I expect we'll see fewer of these advertisements on TV and in print.

So what did happen to gold?

Well, for starters there were some key technical levels broken. If you're a gold trader, but not a technical trader, you really need to learn how to read charts and see what other traders are doing.

Free technical trading course from MarketClub here.
Secondly, there did not appear to be any other news to drive this market higher. When that happens, markets tend to fall under their own weight, and as many retail investors purchased gold, there was nobody on the other side of the market to support gold.

So the question is, is the move over in gold? That's a tricky one. I want to show you in today's video exactly how we're looking at this very emotional market. Every time we have created a video indicating that there would be some pullback in gold, we were bombarded by the gold bugs saying that we're crazy. When you see a market pullback as much as gold has, you have to have some respect for the market itself.

If we look at the price of gold today at approximately $1,330, it pretty much equates to what happened in the last 30 years when gold was trading at a high of $850 an ounce. If you factor in inflation over the last 30 years, gold is probably lower now than it was 30 years ago. So how good an investment is gold? I think gold is more of a barometer of fear than anything else. Clearly there are other investments in the marketplace that have better returns.

Let's get back to gold and what we think will happen. In this short video we analyze the market using our "Trade Triangles," the Williams%R, and the MACD indicator.

As always our videos are free to watch and there are no registration requirements. If you like what you see please comment on our blog and feel free to Tweet or e-mail your friends. I think there's an important takeaway message in this video - what goes up, must come down.

Enjoy the video.

All the best,

Adam Hewison
President of INO.com
Co-founder of MarketClub

Comments

  1. Jason says:

    Hi Adam,
    Do you think it is working? Actually I was given buy signal on 2nd of Feb, just I want to make sure it is working. And of course I bought a gold after buy signal.
    Best

  2. Rajesh Sondhi says:

    Gold, as per the trade triangles, is now flashing a Monthly SELL @ $1308.60. As per Market Club's trade the triangles methodology, it is time to reverse course. The analysis score is -100.

    Do you agree ADAM?

    • Adam says:

      Rajesh,

      You are correct.

      All of our trade triangles are negative on the gold market right now.

      So what does that mean?

      Well for the most part this is the first monthly trade triangle we have seen in quite some time in this market. The last buy signal we had for gold was on 11 February 2009. That's almost 2 years ago. These signals do not come along that often and are to be respected. The rally we saw on Friday was basically a knee-jerk rally to what is going on in Egypt. It certainly did not change the overall negative weight of this market ,

      I know there are many people out there that will say that this is a buying opportunity and they may well be right. However, our methodology indicates that the gold market should be on the defensive at least in the short term.

      All the best,
      Adam

  3. i think gold market is just giving correction but it`s not falling down.can i guess it will return to it`s bullish trend after some days?is inflation is in control? has the problem in US economy solved?of course not.so i think that safe heaven investment will boom after some days.am i correct?

    thank you
    market club

    • Adam says:

      Sudarshan,

      we will only know after the fact if you are correct. All the problems you state are real and it doesn't look as though they've been fixed any time soon. Gold may be in a holding situation at least in the short term.

      All the best,
      Adam

  4. michael says:

    Adam,
    how would you translate the spot gold index to Gold Stocks? does this translate exactly as is to GLD for example? What about Gold Stocks like ABX, AUY, GDX, NG, etc etc..?

    much appreciated.

    thank you

    M

    • Adam says:

      Michael,

      Thank you for your feedback.

      For the most part the ETF GLD tracks gold pretty closely. In regards to gold stocks there are other considerations and variables that come into play.

      You will find that our trade triangle technology which utilizes and values price movement above all else will work very well in both the spot gold market as well as gold stocks.

      I hope this answers your question.

      All the best,
      Adam

  5. Bradley says:

    To answer your question-the markets are manipulated.Easy to do when you control the currency.They can crank up the fear factor at any time they wish.The vault could be filled with fake diamonds or gold coated lead bars.Gold is easily weighed and tested for purity that's why it's used as a currency-and it's a commodity.

    "Give me control of a nation's money and I care not who makes it's laws" — Mayer Amschel Bauer Rothschild

    "From now on, depressions will be scientifically created." — Congressman Charles A.
    Lindbergh Sr. , 1913

  6. dd says:

    Again,

    Nothing new.... just more crap. Better returns in the market place? 20% for 10 years running.

    Do some homework next time buddy.

  7. Bradley says:

    If gold was just a commodity, why in times of war does the enemy walk right past your banks vaults full of paper money and steal your gold?

    • Adam says:

      Bradley,

      If the vaults were full of diamonds they would take the diamonds. In times of war obviously the defeated countries money is practically worthless. That was not the question. Gold, silver, copper and other metals are commodity markets. It is in times of fear people run into the gold market. It happened in the 80s and it is happening now in 2011.

      All the best,
      Adam

  8. Jim says:

    Mmm, I dunno... Tulips maybe or whale oil? Sorry, I'm joking and you are right of course. Gold is in the commodities group, and I didn't see that you meant gold only as I should have - my bad.

  9. Jason says:

    Adam first I would like to thank you for your effort and providing us to follow by operating this site. I am trying to predict gold price in Turkey and your site is very helpful for me indeed.
    Although I couldn't use your triangle system, discussions are good for having an idea.
    In this context, I suggest to use "stochastic oscillator" especially for "buy point". (I am buying-selling one of the gold fund so I have volume information which more or less has been present world price) It is working very good and I did buy almost exact buy point and sold my gold from "sell point"ç Of course gold is more likely to move according to the uncertainty in global economy, but following to the technical analysis would give you clue. Most importantly economical problems still exist. By using TA-stochastic oscillator, I can predict downward trend beginning of this month and sold my gold funds.
    Again I do predict an upward trend after 14 days, 10th-12nd of February 2011. Then I will buy a gold.

  10. graham says:

    The "central bankers" all over the world are able to do just that, in a controlled plan, as they control almost all aspects of of Fiat money. Before you post please take time and research what you know so little about.
    Start with the "red shield ".
    Then his sons.... and what banks they controlled and the lies of what they did to fleece the English banks and Government and
    follow their control to today......The Masses are Sheeple....Wake Up!!!!!!

  11. Brutus says:

    I take it that you are referring to US Dollar as a reserve currency! Well I hate to break it you but your idea is flawed!
    Gold/Silver/copper/.., what we can not recreate in the labs and print via the printing machines, are the true backers of the reserve currency.
    US dollar is nothing but a worthless paper == FIAT paper, and in no shape and form can be used as a reserve currency.

    I think Aussie dollar and/or Canadian dollar are the prime candidates for the reserve currency
    and if you ask why then go do some research, education is good for you.

    • Adam says:

      Brutus,

      Thank you for your feedback. I don't believe I mentioned the dollar and certainly not in the reserve capacity in the video that you referring to.

      That is a whole other subject and one that I'm very familiar with as I been trading currencies since the early 80s both in Europe and in the US.

      All the best,
      Adam

  12. Jim says:

    Adam's cooments :
    "If we look at the price of gold today at approximately $1,330, it pretty much equates to what happened in the last 30 years when gold was trading at a high of $850 an ounce. If you factor in inflation over the last 30 years, gold is probably lower now than it was 30 years ago."

    First, you picked an anomoly for your reference, because the $850 was the top of a panic spike when interest rates were also at an all time record high. the exact opposite is true today'

    Next, you mis-define the effective result of inflation: Gold does not change intrinsically, but the dollar is constantly being devalued - therefore the economic relationship should be stated in dollars lost compared to the gold constant. That constant has remained a reliable standard since 1913 (Federal Reserve invented) when $20 bought one ounce of gold, through today, when $20 buys about one-third of a gram of gold. (just under 1/100th oz.)_

    "So how good an investment is gold? I think gold is more of a barometer of fear than anything else. Clearly there are other investments in the marketplace that have better returns."

    Yes, and thousands that are worse. Which would you rather have invested in: Gold?, or GM , Lehman or Enron? Gold has never become valueless in over 4000 years, nor is it likely to. Thousands of corporations have, and despite the technicals, their investors were ruined.

    • Adam says:

      Jim,

      Thank you for your feedback.

      Name one commodity that has become worthless. You assumed that I was just talking about stocks and corporations, There is a whole world of investments out there and you should not just be looking at just one or two.

      All the best,
      Adam

  13. John, Elko NV says:

    I agree we need to be careful.
    Eventually we will have to have a market correction for the SPY, something like that may be accompanied by the dollar going higher.
    If the dollar goes higher, commodities and gold are vulnerable to go down with the SPY.
    So all this is part of the game between the Fed and the Big Boys on Wall Street playing their games and day trading.
    However, eventually inflation will kick in and then gold, oil and commodities will rocket higher.
    Whenever I play the day trading game, the manipulators get me,
    so it's back to the weekly/monthly triangles for me.
    I keep an eye on the dollar as my primary indicator & canary in the mine.

  14. Chris says:

    This is about moves into a spiking commodity markets, and profit taking in gold, nothing more. Look for sideways ping-pong between $1300 - $1400/oz until NYT announces that QE2 is the reason for your $4/gal gas and $5/gal milk, then it will resume it's northward climb. The only thing that could preempt that process is if the scandal over ETF inventory ratios fraud finally sees the light of day, before that. HOLD ONTO YOUR PHYSICAL GOLD & SILVER PEOPLE! I THINK ONE DAY SOON YOU WILL NOT BE ABLE TO GET YOUR HANDS ON MORE EVEN IF YOU HAVE THE MONEY TO PAY SKY-HIGH PRICE.

    Just my $.02

  15. gregg says:

    I CAN BUY GROCERIES WITH GOLD. GO TO THE GOLD STORE SELL MY GOLD FOR FIAT MONEY BUY GROCERIES. EAT GROCERIES. IF THE GOVERNMENT TOLD YOU THAT SEASHELLS WERE MONEY WOULD YOU WORK FOR SEASHELLS?

  16. gregg says:

    waiting for the next green weekly triangle to go all in long. -- IF YOU COULD PUT A BUNCH OF US DOLLARS OR A BUNCH OF PHYSICAL GOLD IN A BOX FOR YOUR KIDS TO OPEN IN 30 YEARS WHICH WOULD YOU CHOOSE? I CHOOSE GOLD. IF YOU PUT A BUNCH OF US DOLLARS AT THE BOTTOM OF THE OCEAN FOR 100 YEARS IT WILL BE WORTHLESS. IF YOU PUT A BUNCH OF GOLD AT THE BOTTOM OF THE OCEAN FOR 100 YEARS - THAT'S CALLED TREASURE!!

  17. Steve says:

    According to James Flannigan at Gann Global, the commodities markets are all about to take a very major correction, probably within the next two months, and it looks like it has already started. He uses D.W.Gann's historic data analysis techniques and findings, along with a massive amount of searchable historical price data, to come to that conclusion. It's what Gann called a 60 year cycle that repeated and repeated as far back as commodity prices have been kept, which started around the 12th century.

    This 60 year commodities cycle, Flannigan says, just so happens to coincide with a 60 year conjunction of Saturn and Jupiter, absolutely coincidental, of course, couldn't be any possible relationship there, right? Gann found that, and was very intrigued by it. Oh the universe is full of such "coincidences". Dismiss it at your own financial peril, or if you feel really affronted by that information, go ahead and prove it wrong by betting against it.

    The plunge in gold is sort of like the plunge in violent crime rate during the worst economic recession since 1932. It shouldn't have happened according to all the known factors of police experience, but there it is for all to see. Obviously there IS some factor that isn't seen, major trends like that don't happen without cause (or minor ones, either). Otherwise, it wouldn't happen, the universe runs on action and reaction. So it behooves you to keep an open mind on what causes such changes. The surface appearance of life, the events, are the effect. Causes can be much deeper than one could even imagine.

  18. lowervolts says:

    So far, plenty of excellent comments from everyone.

    I would just add I believe PHYS & PSLV are by far the better trading vehicles for PMs when compared directly to GLD & SLV.

    And everything & anything can be used as money until it isn’t.. But note recently as the dictators & ruling elite flee the angry mobs it’s the gold they are taking with them.

    Zerohedge just now reports: January FOMC Minutes: Unanimous Vote, Nobody voted against continuing the insanity.

    Party on Wayne! Party on Garth! LOL;)

  19. Hpar says:

    you can swap comex for what it really is, CRIMEX. hehe. in the end, when this financial disaster of derivatives and bankster scam tactics like GS and their high frequency trading scandal implodes, which, it will, there is only one thing you can count on, real money, aka gold and silver. in other words we are far from the ultimate top.

    another point, all the "experts" in FOREX will tell you "it is impossible to manipulate FOREX because it is too large a market blah blah blah" HOWEVER, all you have to do to manipulate FOREX is control and manipulate real money, aka gold via CRIMEX or perhaps even more so the London exchange with their price fix nonsense etc etc!

  20. Fred says:

    Couple things people need to keep in mind:

    1. Gold IS NOT a reserve currency. You cannot buy groceries with gold. Even during the Great Depression gold was not circulated as money. So, that being said, gold has very littel real value. It is just like paper money in that it has value just as long as people agree in priniple that it does.

    2. Since gold has no real value then it's price is driven up by nothing more than speculation - not fundamentals. Anything driven up way beyond it's true value is subject to massive corrections, or what I like to call the wholesale dumping of an asset.

    Buy gold if it makes you feel better, but if the economy tumbles the real reserve currencies will be food and oil.

  21. Bradley says:

    Gold is money-everything else is just paper with pretty pictures on it.

  22. Brutus says:

    my trading rectangle just turned pink signaling it is time to buy back in and go long.

  23. marcus says:

    What if Gold has peaked? What if China's growth has peaked? It's not a secret that the PBOC is reacting too late to curb inflation, and I doubt raising interest rates will be effective due to the lack of consumer financing available in China. Keep all eyes on the money markets in China. We all know that when China slows, a sell-off in commodities is positive for the USD and negative for gold. It will be extremely difficult for the banks in China to continue to pass the cost of NPL's onto its households much longer, which are sustaining its real estate bubble and its subsidized export model. Throw aside the conspiracy theories when placing bets, and rely on a technical study of probabilities. Even if you think you understand the market don't trade on that basis, because we are often wrong.

  24. steve says:

    I would contend that a 7% pullback doesn't constitute a collapse. From a technical standpoint, it's just a blip. However, from a formation standpoint this is looking like a mid term top, and you could easily see a 8 or 9 month pullback in gold. I say accumulate at resistance points.

  25. Anthony Humpage says:

    Adam,thanks for this blog post.
    I have been long gold using GLD and it has been quite kind to me. As I think I have said here before, I manage my own portfolio on the weekly trade triangles with a little bit of confirmation from the technicals, principally MACD, where a cross and a steepening to the downside preceded the red weekly of 1/14. GLD closed at $132.69 that day.
    One of the hardest lessons I have had to learn is divorcing ego, pride, greed and opinion from my trading. I still don't always get it right but I do understand that one should find a system that works and work your system. Which is why, with my own investment money, I work the weeklies. I try not to care what the markets *should* do and instead attempt to follow the way they lead.
    To which end, even though I am bullish on gold intermediate and probably long term, a trade that looks nice having gone to the sidelines of GLD on 1/14 would be to go long DGZ at the open on 1/18 @ $15.73. As I write this DGZ is trading at $16.17 for 7-day gain of 2.8%. I will take that number.

  26. Joshua says:

    While technicals are important, I have to laugh at people who say oh that one is lagging and this one is predictive. All indicators are based on what has already happened. Actually they all attempt to predict future market moves. In reality people waste time trying to find logic in this, where there is none. As traders we are all looking at the same thing and responding the same way. What does that tell you? If you really want to see how the "elephants" are moving around the markets go to http://www.trendsinfutures.com. I just found this site and it presents the new COT report. Boy, seeing how the swap dealers and true commercials move massive amounts of money in Gold is eye opening. Call it manipulation ow whatever, who cares it creates some nice movement in futures and that is something you can take to the bank. As far as people calling Gold/Silver currency. Nest time you go to the store to buy something see if they are willing to take these as trade. Not yet. And if what the doom and gloomers are saying will happen to worldwide currencies happens, you do not need gold in your house, you need lead. Food would be nice too. Gold bugs push buy gold buy gold. At the same time these large holders of gold (gld) come to swap dealers to short in futures.

  27. Mike says:

    While I agree With Mark P that the long term price of gold is up (listen to the straining printing presses--oops make that the straining cooling fans in the government computing center where they add zeros to the M2 and debt amounts), I also agree with Adam's charts. When Oil went to the 150 area people were talking about 200 oil. Didn't happen yet. They were right (but not quite yet) but there was a big correction in between. If you want to hold a position like gold or oil that is okay but there may be rather large "dips" along the way. One commentator (who I forget) thinks a 50% correction in gold and silver is possible. I don't know. I bought a little GLD and SLV but am holding off buying more until this correction plays out. Then when you think it has bottomed and is again going up those etfs as well as SIL and GDX and etc. would be appropriate. Just my 2 cents fwiw (depends on whether they are copper (old) or copper clad zinc (new) pennies.

  28. Sandrina says:

    I consider technicals important because the Hedge fund algorithms kick in and don't give up until technicals tell them different. Much of what we see is computers trading. Yes, the Comex is a crime syndicate and it grieves me that they control the gold price by trading paper! ... darn paper is everywhere. Fortunately sometimes physical buying overcomes their games ...

    Another thing should be mentioned with discussing gold action is the options expiry scam the bullion banks pull at the end of each month!

  29. johnbmac says:

    hi mark,

    i've been exposed to the same information you discuss for years, probably back to '99 or '00.

    i've come to the conclusion that the only way to address the situation is to accumulate real gold and silver bullion while trading paper gold/silver etfs or stocks as if they were a true market.

    my gold & silver bullion accumulation began in '99 at gold 265 and continues today at 1350.

    my expectation for paper gold is a pullback to the 1050 area. maybe it won't pullback that much so i will adjust.

  30. lucio says:

    I like to mention to every one Adam's last SHORT term triangle signal $1370 which has been very profitable so far over $40.
    Thank you Adam!

  31. Brutus says:

    This is another golden opportunity to load up on cheap gold.
    QE to infinity.

    Happy Aussie day to everyone.

  32. Victor says:

    Mark

    You make some valid points regarding the Comex and the fact that the markets are manipulated, however I disagree with you on the validity on Marketclub's Technical charts. Although I am not a Marketclub member, given my current financial hardship, I have nonetheless followed their publicly available charts and videos for some time, and can attest to the fact that their trading technology indicators are ON THE MONEY.

    The current pullback in the gold/silver markets are part and parcel of the cycle, longs should stay the course and resist from being shaken out. I also concur with Adam's current analysis, Gold is oversold but the dip may not yet be over. Longs should continue to buy, because the long term trend for gold/silver is still headed up.

    We should not forget that Gold/Silver is money. As fiat currencies around the globe devalue, as real estate continues to plummet, as equity and bond markets continue to teeter over the abyss of mass collapse due to the massive debts and derivatives... what's left of value? The Comex can continue to play its games and short gold/silver, but soon the gates will collapse from the raging hoard of bulls stamping into the precious metals markets seeking refuge and opportunities for massive gains. Short at your own risk. Stay long!

  33. Lee says:

    Price moves three ways, up... down... and sideways. I care not WHY Gold moves, just when.

  34. Paul says:

    Sandrina has it correct:
    “Same thing happened last yr at the very same time.”
    The ECB has to MTM the euro at the end of the year. And if you recall the Euro tags gold.
    What we are witnessing is a pump and dump tactic for a book entry. The people in the know can make a pile on information available to insiders. Unfortunately for TPTB the gold market is becoming very predictable. A yearly increase of 17% is cooked into the books just follow the 200DMA. And don’t forget about options expry week!

  35. mark paxton says:

    Um, hiya. Clearly you're trading totally blind here in the gold area and seem to be completely unaware of the corruption of the Comex where paper prices are set. I'd refer you to harvey organ's blog regarding the day to day activities there, and the efforts to smash gold and silver prices down .... to allow two rather large market participants out of their galactic-sized shorts.

    Anyone selling out of gold based on the charts is now simply endorsing the theft by these entities.....and helping the Fed's long term strategy of concealing inflation thru the Fed-sponsored manipulation of precious metals. This strategy has been in place for well over 12 years and has been documented endlessly and fruitlessly to the "regulators"....there was even a whistleblower who showed up at CTFC hearings and walked the "regulators" thru a manipulation, read bear raid by the majors shorts, in real time.

    So, to pretend that the gold market plays by the charts is a complete fantasy....and those that believe it are regularly reamed by the major shorts. The key here is to buy the hard metal and take possession......and use every dip like the current one to purchase gold and silver stocks........

    your article while interesting with regard to the rules of technical trading is more harmful to anyone wishing to protect the value of their savings than helpful. While I like technicals too, the one thing trading gold and silver has taught me is that you should really know something about the actual market involved before relying on technicals entirely.

    • Adam says:

      Mark,

      Thank you for your feedback.

      A couple points I would like to bring up that I would agree and disagree with you on. First let's agree gold is a global market. It is traded all over the world, I find it hard to believe that there is conspiracy going on in Hong Kong, Bombay, London, New York, and a host of other cities that have gold centers. The world is not that smart to coordinate such a large conspiracy.

      History has shown us the gold swings both on the upside and the downside. Frequently the fundamentals don't change at all but the prices do. As a trader and investor the bottom line is your P&L. If you're buying gold to just bury it in the backyard and keep it in your vault that is a different matter and requires a different mental attitude towards the product.

      This may or may not be a surprise to you but many of the largest traders in the world including some the biggest hedge funds use technical analysis to time their buys and sells not only in gold but also in other markets.

      So with all due respect, I think that by not paying attention to the technicals, is just as bad as not being aware of the current perception of the market. Both are equally important in my book.

      Our long-term "Trade Triangles" if you look at the video are still positive on gold. That has not changed since gold traded at $929.50 on 11 February 2009. That's almost 2 years that we've stay positive on this market on the long-term. That's what I believe good technical analysis can do for investors and traders.

      All the best and with the greatest of respect,
      Adam

  36. sandrina says:

    Same thing happened last yr at the very same time. Gold was $1150 and dropped to $1060 in mid-January.. The late-comers get fleeced .. that's what it is all about.. ambush the rally chasers, take them to the wood shed..

    Also when the hedge funds start unloading, they all fall in line.. It's not rocket science...

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