Three Reasons For The Collapse Of Gold Prices

Many of the gold bugs cannot understand why gold prices keep falling. One would think with all the strife around the world, the financial crisis in Greece, plus the stress and conflict in the Middle East and various other countries that it would be an ideal time for gold prices to go higher. That, my friend, was the old way of thinking, that is not the way the markets really work.

Let's take a look at what's really happening and the three main reasons for the collapse in the price of gold.

(1) We had seen very strong equity markets around the world which gave an opportunity to investors to make money. Remember, gold pays no interest and in fact, you have to pay money to store gold. So in that sense it's a little like holding insurance for a catastrophic event.

(2) Gold has failed to respond to any of the traditional triggers, such as financial unrest and uncertainty. What this signifies is that the perception of gold, at least for the moment, has changed. In any market, perception is perhaps one of the most important elements for dictating price direction.

(3) The technical picture has been deteriorating for some time. Our last major clue to deteriorating gold prices came over four months ago when a bearish signal in the form of a RED monthly Trade Triangle kicked in at $1,150.84 on March 11th. That signal was quickly followed by a series of weekly Trade Triangles, the latest of which came in on June 4th at $1,184.31. The last RED daily Trade Triangle kicked in on July 7th at $1,163.50. With all of the Trade Triangles negative, it indicates that this market is in a bear trend and most likely headed lower.


So, how low can the price of gold go? To many gold bugs, the price is probably too low right now, they are probably aghast at today's move. I see no reason to try to pick a bottom in the price of gold.

Like water, gold will find its own level whether that's at $1,000 or $700 or lower is largely dependent on the market itself.

Technically speaking, the $1,000 level will psychologically act as support, as that was the high seen on March 14, 2008 and it also happens to be a round number and markets tend to stop both on the upside and downside at round numbers.

Only time will tell how low gold will go. In the meantime, it looks like we have a pretty exciting week ahead of us with the equity markets and what's going on in gold.

I will be back tomorrow with a video market update, but until then, thank you all for reading and commenting on our blog.

Every success with MarketClub,
Adam Hewison
Co-Creator, MarketClub

27 thoughts on “Three Reasons For The Collapse Of Gold Prices

  1. Wait, you guys are all flumoxxed by China putting out phony numbers, but guess what? It's not like the U.S. is any better. Anyone who lives in the real world knows inflation is and has been a whole lot higher than the 1% per year that's been issued for years now. Retirees and military are getting cost of living raises based on totally phony numbers. The phony inflation stats the U.S. Govt. puts out almost shows what the old Soviet Politburos issued look honest.

    Yet few care. As evidenced here as well. Which affects you a whole lot more? Chinese bogus gold numbers, or the absolute fraudulent inflation numbers the west trots out?

  2. Adams "trade triangles" for gold were very bullish not long ago at $1,220. Then there was no follow up on if he closed out.

  3. May just be gold in a bubble after going way off the reservation compared to silver, oil, and other commodities. Gold has a scarcity factor, but gold is selling at 80:1 to silver, over 20:1 to oil. That's an aberration. I'm buying silver now and picking up dividend paying oil stocks.

  4. I wonder if some big bank had inside knowledge of the China gold reserve figure & dumped gold Friday. I have read that nobody believes the figure & China has much more gold. Why would they low ball the figure? To drive prices down & add to their reserves at bargain prices.

    1. Chinese values in this world are very corrupt they value things like gold, ivory,rhino tusk,and seemingly any endangered species they can deep fry but why limit this to Chinese Japanese love slaughtering whales for some disgusting tradition ;Europeans indulge in their fair share of perversions /;sex vacations in 3rd world countries to sodomize and rape young children ;the extraction of gold has always had a stink on its reputation only now are these things be

    2. If China is deliberately releasing incorrect data on how much gold reserves they have, with the possible intent of manipulating the price and riving prices lower, so they can-- what? Keep buying at prices China perceives as low. . . can you blame them? The West seems to have completely lost sight if of the fact that it forced opium addiction on the Chinese to the benefit and profit of the Drug Lords of the time. Do you really believe China has forgotten what European Civilization did to them? Do you think they care about playing "Global Economy" by rules set up by the same people who screwed them over? If you do, I believe you live in an air-conditioned, netflixed, corporate media-fed, brave new world: Fantasy.

      1. China cornering the gold market doesn't hurt Britain at all. Probably hurts India the most given Indian usage.

        1. I think, India will never hurt from Gold decline, up- to any level, i am tailing this because i am from India, and far batter understand psychology and tradition of Indians.

          You may not aware of that fact that Indians are never treat Gold as an Invest Avenue, and never bother about prevailing market rates, and they keep Gold just as a Social Traditions, so even at $ 1925 Mark, they just not sale a single gram of Gold, instead, they were buying even at that pick level too.

      2. I suspect the answer to the collapse of gold is two fold:
        1. If they reported that they actually had more, their currency would appreciate due to greater gold backing and down go their exports
        2.They just became part of the gold fix banking group and can have more influence (good or bad) on gold prices

        PS. look for more wild swings originating from them while the West sleeps

  5. Around two years ago I was corresponding with a technical guy from Oz. Discussing gold, trying to get him to consider buying some as a emergency insurance. He liked the P&F charts, which I never really took to. Wow, at that time the P&F chart for gold was bearish giving a bottom below $800. That was two years ago.
    Thanks, Adam for all you do.

    1. Dear VIrginia Knapp,

      As you are surprised by two years back forecasting, my predictions were much older then that even, you may check bellow links to confirm my claim.

      november 20, 2012 by adam hewison
      Rasesh Shukla says:

      With Regards,
      Rasesh Shukla - India.

    2. There is a long term trend line in 1-2 months more trading would hit support around $900.

  6. Another factor in gold's drop may be investor exuberance. DJIA 6500 in Mar 2009 seems like a century ago. The major stock indices are now back to record highs. Stock prices are hitting historic highs regularly and like housing prices in 2006 will keep rising forever. The Federal Reserve has done an amazing job of rescuing the economy. Investor confidence has elevated to the level of exuberance. Don't worry, be happy and chase those stock prices.

    For gold to function as catatrophe insurance there has to be a perception by investors that a catastrophe is possible. The lack of investment in gold may be an indication that investors are over confident. The impending Fed rate hike hasn't seemed to have dampened investor exuberance. If the implementation of the rate hike does not cool the reactor it could over heat resulting in a melt down (ironically referred to as the "China Syndrome").

    Gold dip is due to investor perception that the Fed is invincible. Who needs gold when the Federal Reserve functions like a huge standing stop-loss order. We all know how well stops work.

    1. Hi Idigmines,

      Any macro, micro economic fundamentals can't explain that SHARP move of gold on a peaceful Sunday night.

      There weren't Grexit, Brexit, a new war or an extraordinary FED meeting who decided to hike the rates followed by picnic with fireworks Sunday night.

      There wasn't a crowd of Chinese investors who woke at Asian opening and before going to the bathroom they unanimously decided to dump the gold.

      There wasn't a hedge fund or a Chinese bank who decided to sell-off all gold reserves at own substantial loss at the time when the market is particularly thin. Let's recall they could have dump their gold at 1,145 during American Thursday session. They would have certainly done it at more lucrative prices two days before or one day before if they had had a necessity to sell gold.

      The only reasonable explanation is the combined actions of spot, futures and option market makers. For details, please, see my post.

      As for me, it's a singular situation when the market is extremely thin.

      1. As a Chartist, Gold was trapped in a Classic Wedge formation and broke down and thru the lower Support Line of that Wedge around 1150-- Period. As thousands and thousands - and thousands - of other Chartists saw the same thing, there were, lots of Sell Stops below 1150 just waiting to be triggered.

        1. Your observation explains a three-day move from 1150 to 1130.
          But the four-second move from 1130 to 1085 is a thin market.

        2. Inside 1130 and 1150 range there were the stops and the buy limit orders
          Below 1130 there weren't buy limit orders only stops.
          Only few Chinese speculators believed that gold could have gone below 1100 on a Sunday night of July.

  7. It's worth to underline additional motivation for the OPTION market maker to bring the price below those psychological levels of 1,100 and 1,090. Let's see how many the gold put sellers with strikes 1,100 and 1,090 and July expiries were exposed.

    As a consequence, the combined efforts of spot, futures and option market makers have made that price.

  8. Wanted to share my opinion on the subject
    (1) and (2) arguments don't stand for today SHARP night move.

    (1) The strong equity market was for a few last months and gold was moving synchronously together with the equity.
    It's not probable that a crowd of investors woke up Sunday night and began to disinvest from gold in favor of equities.
    (2) The same reason.

    (3) I agree the technical picture was poor for gold but only until last TWO WEEKS.
    Namely, the gold futures trading volume, its price action and strong multi-year resistance of 1,130 price level.
    There is a valid technical background for long positions with short stops.

    A paradox?

    Last week, there were good news for USDollar and bad news for Gold as it wasn't bearing interest rate reward for the gold investor). FED confirmed the intentions for the lift-off.
    That intentions were already partially priced in by fundamental investors. Want to emphasize the word "INTENTIONS" it's not the same as the decision to hike the interest rate today morning. All news traders remember a golden rule : buy rumors, sell facts.

    The most probable explanation: "VERY THIN MARKET" as of a hot July summer night.
    The market maker took advantage of the condition.
    A strong lack of demand (buy limits orders) below 1,130 price handle occurred last night.
    The algos of market maker easily brought the price at 1,180 to buy the GOLD at advantegeous, significantly lower price 1,180.

    The conclusion: next days price action and volume will show whether the bottom is a true one.

  9. by the way, fiat paper cash is not earning interest. Check out Larry Summers paper Gibsons Paradox where he opines that he could control interest rates of he could control the price of gold. Well. He had his change and now there are 47 million ounces worth of OI on gold and 483,000 ounces in eligible and a lot of unbacked contracts with a physical supply crunch (ask those refiners).

    meanwhile the Fed woudl have raised interest rates already if it could but the jobs reporting is a fictitious mess-not my words but those of a Congressional Committee investigating jobs reporting. Retail sales are down. at same time lower fico score car buyers are getting loans at 147% loan to value. Nice incentive. Fannie Mae giving zero down loans.

    CBO is saying we are on an unsustainable path on deficits and debt and nobody in DC cares. in a few years Medicare runs out of money and we will see a 27% reduction in benefits.

    if we are going to analyze why some thing like gold and silver go down it would be nice to be thorough. Yes, there are more sellers than buyers.But the sellers are bogus with selling artificial supply.

    You might not like being long gold and silver, I can understand that. but its rather dangerous to be short gold and silver right now when there is no supply and plenty of demand, especially from other parts of the globe, ie Asia.

  10. The prices of precious metals continue to decline simply because their prices are manipulated in the paper markets through the massive dumping of uncovered short contracts.

    This is done through the bullion banks (principally JPMorganChase, HSBC, and Scotia) in order to drive down an otherwise rising price of gold. By dumping so many uncovered short contracts into the futures market, an artificial increase in “paper gold” is created, and this increase in supply drives down the price.

    This manipulation works because the hedge funds, the main purchasers of the short contracts, do not intend to take delivery of the gold represented by the contracts, settling instead in cash. This means that the banks who sold the uncovered contracts are never at risk from their inability to cover contracts in gold. At any given time, the amount of gold represented by the paper gold contracts (“open interest’) can exceed the actual amount of physical gold available for delivery, a situation that does not occur in other futures markets.

    In other words, the gold and silver futures markets are not a place where people buy and sell gold and silver. These markets are places where people speculate on price direction and where hedge funds use gold futures to hedge other bets according to the various mathematical formulas that they use. The fact that bullion prices are determined in this paper, speculative market, and not in real physical markets where people sell and acquire physical bullion, is the reason the bullion banks can drive down the price of gold and silver even though the demand for the physical metal is rising.

    The purpose of this is to protect the power and value of the US dollar as the global reserve currency. The hyperinflationary policies of the US have created a powerful incentive for people to protect themselves from the inevitable collapse of fiat currency through the purchase of precious metals (among other real goods), which have traditionally served as real money that cannot be created electronically or through the printing press.

    1. "The prices of precious metals continue to decline simply because their prices are manipulated in the paper markets through the massive dumping of uncovered short contracts. "

      EXACTLY. I was going to make a post but you did it for me. It never ceases to amaze my why so called investment gurus, and that includes you, Adam Hewison VERY seldom mention manipulation, although that is the MAIN one. I wonder why this is.
      Greenspan was usually as vague as a shadow on a dark night but this quote is clear: "Central banks stand ready to lease gold in increasing quantities should the price rise."
      They simply send their partners in crime, JP Morgan, to bring it down via the futures markers. It's in competition to the USD and they want that to remain high.
      Speaking of "high." it's high time you Americans (I'm from Australia) did something about your "Federal" Reserve. They are there for their OWN benefit and have been a parasite on the country since 1913.

  11. I believe that the Federal Reserve is to blame, they are keeping the gold prices low

  12. Dear Adam,

    I think, now it is meaning less to find reasons for Gold Collapse, this is nothing then an exercise like "Post mortem Study" because in such studies alike, from which,you can just observe a reason of Death, but cant get or restore life again.

    Till the date, Not just many, but most Gold bugs simply hate any bearish views, they were never ready even to think over such opinions or predictions, as earlier, I experienced the same reactions for so many times, because since 2011 onwards, I am giving warning signals against Gold Bull Run, however,my all earlier Posts, published in this INO's Traders Blog Section, that were not just ignored but even criticized too, in a badly manners.

    Now question remains for Gold is about What next? , I am continued with my Bearish view, but now onwards, Time or duration factor of this down trend will be more significant, rather then predicting any lower targets, because here after onwards, as far as Gold Down trend is concerned, batter we focus on question "How Long" instead of thinking about "How Much" because as per my studies, this down trend will long last for a quite and unexpectedly long duration with some specific upper and lower range with lower tops and lower bottoms.

    1. one problem. The Physical market is tight than tight. Ask a refiner. They are trying to buy.
      Right here in the US and actually refiners in Chicago.

      then the "pro's can look at the COT and get a feel for whats happening--OI has been exploding. COMEX admiss around 47 million ounces of gold futures and has eligible for delivery 483k of gold. Why is that not discussed?

      the game is the govt selling or facilitating lower prices by allowing unbacked selling of contracts.
      Not a surprise to Larry Summers who wrote the book on this.

      then ask The Shanghiai Gold exchange and ask if they really did deliver 65 tons of gold just last Friday alone.

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