Another holiday weekend approaches and the gold price movement is proving more boring than fishing in a bathtub. In light of some critical approaching deadlines, gold could be trading at record highs every day and nobody would question why.
I think we've come to the point where we can't even be certain about our uncertainty anymore. The last May debt ceiling deadline and potential default crisis came and went as Treasury Secretary Geithner did some financial gymnastics and borrowed money from Federal pension funds to keep government afloat. Now, if we don't raise the debt ceiling by August 2, we're really in trouble.
The reality is, one way or another, the dollar is in serious trouble. Those who own gold already know this. Central banks of the world have not been scrambling to own more gold because of the high esteem with which they hold paper money. Right now they despise paper money. So, if gold owners, Central Banks included, know the dollar and most other paper currencies are in trouble, who the heck is selling their gold? Why is the gold price pulling back?
I look back to the few weeks before our last Easter holiday weekend and was surprised to see that just 20 days before, gold was trading at less than $1450 an ounce. Then, while our backs were turned and our markets were closed, Asian buying drove the gold price above $1580 an ounce.
I suspect it didn't take much volume to accomplish this as the largest trading markets in the world were on break. Upon our domestic markets re-opening, a panic gold sell-off ensued on reports that gold had finally gone parabolic and the bubble had burst.
Apparently, though, one man's panic sell-off is another's buying frenzy. Later we learned, that over the course of January through April, with April being the heaviest month for buying, China's gold purchases put them on pace to be the world's largest consumer of gold. In April alone, China reportedly bought 100 tonnes for a total of nearly 200 tonnes for the year to that point.
Then came another holiday in May and the scenario replayed itself. Gold prices drifted back below $1480 an ounce and by May 30, Memorial Day, reached a 4 week high near $1540 an ounce. Then, another sell-off, albeit less dramatic at first, but more pronounced in just the last couple days.
If I were in all-out gold accumulation phase, I could concoct no better plan to do so than the one being played out right before our eyes. On light volume, gold prices hit record highs or period highs and spark a sell-off that floods the market with cheap gold. That results in panic selling or looked at another way, an opportunity to buy low, lower, then lower yet. The charts tell the story.
Today, there is no reason for the gold price to drop below $1500 an ounce, but it did. There's a hundred reasons for it to rise and that's why I believe the recent pull back is some kind of trick. Is it manipulation or just savvy trading? Call it what you want. Every trade manipulates the price of anything you buy or sell. I just think some traders' timing is better than others.
We'll see what this next holiday brings to the gold market. LearCapital.com