Gold’s Momentum Melt-Up Imminent?
by Kevin Cook
Wed, 02 Sep 2009 10:41 CDT
Related Symbols: XAU GLD SLV
Earlier this year, I wrote about how gold could go to $1,200 purely on fear about the U.S. dollar spiraling into a black hole of debt and doubt. Since markets trade on emotion and overshoot to extremes of optimism and pessimism, this is a very likely scenario for gold in the next year.
In my MarketWatch piece published yesterday about the U.S. stock market pricing in a perfect economic recovery, I didn’t address gold specifically. But I got a great comment on the piece that got me thinking a bit more about the imminent melt-up. The writer, who calls himself “goldstandard,” highlights the nature of a big move on these fears:
“We stand a very good chance that the move in metals will not be a ‘rally’ per se, the coming revaluation may be upon us whereas an overnight or 1 week bank holiday occurs and everything opens at new and more ‘Mother Nature’ correct levels. You cannot time this revaluation, you can only be in place ahead of time and wait to watch it happen. Too many potential trip wires exist and some are not obvious. All you need to understand are the physics involved as the dominoes fall. They can either go one by one in an unstoppable manner or during an earthquake (official revaluation of the currency) they all fall simultaneously. We are VERY close.”
Goldstandard could be very prescient here. What he is talking about happens in currencies more often than you might think. The key words and phrases here are “revaluation,” “overnight,” “in place ahead of time,” “trip wires,” “dominoes,” and “earthquake.” I am not trying to spread this brand of fear. I’m just talking about “black swans” and agreeing with him (or her) about how markets really work. The unexpected and unpredictable shocks in markets have the biggest consequences precisely because they take everyone by surprise and run further as panic reactions feed the frenzy.
How does gold close at $975 on any given Friday and open at $1,050 on Sunday? A lot of factors could come into play here. A rash of U.S. bank failures. A government breakdown in a key market like China. And the kindling for an unexpected move is already in place with gold consolidating its 2009 gains in an ever-narrowing triangle between $865 and $1,000. That’s a lot of pressure and doubt building up.
What’s the doubt? Every time a gold bug goes on TV and says their precious metal is going to $2,000, most of us laugh. That kind of smirking doubt turns to shock and fear when an event happens that makes the unreal real.
What’s the likely near-term reality? If we get above $971 this week, $990 will come very quickly. And February’s high of $1,000 and the March 2008 high of $1,015 aren’t that much of a stretch at all from $990. Most of us, except goldstandard of course, would prefer gold move slowly like this in its ascent against inflation doves everywhere. But being aware of the potential for a black swan-type move won’t hurt you, either.
"Mind the risk, bank the profits!"
by Kevin Cook
Wed, 02 Sep 2009 10:41 CDT
Related Symbols: XAU GLD SLV
Earlier this year, I wrote about how gold could go to $1,200 purely on fear about the U.S. dollar spiraling into a black hole of debt and doubt. Since markets trade on emotion and overshoot to extremes of optimism and pessimism, this is a very likely scenario for gold in the next year.
In my MarketWatch piece published yesterday about the U.S. stock market pricing in a perfect economic recovery, I didn’t address gold specifically. But I got a great comment on the piece that got me thinking a bit more about the imminent melt-up. The writer, who calls himself “goldstandard,” highlights the nature of a big move on these fears:
“We stand a very good chance that the move in metals will not be a ‘rally’ per se, the coming revaluation may be upon us whereas an overnight or 1 week bank holiday occurs and everything opens at new and more ‘Mother Nature’ correct levels. You cannot time this revaluation, you can only be in place ahead of time and wait to watch it happen. Too many potential trip wires exist and some are not obvious. All you need to understand are the physics involved as the dominoes fall. They can either go one by one in an unstoppable manner or during an earthquake (official revaluation of the currency) they all fall simultaneously. We are VERY close.”
Goldstandard could be very prescient here. What he is talking about happens in currencies more often than you might think. The key words and phrases here are “revaluation,” “overnight,” “in place ahead of time,” “trip wires,” “dominoes,” and “earthquake.” I am not trying to spread this brand of fear. I’m just talking about “black swans” and agreeing with him (or her) about how markets really work. The unexpected and unpredictable shocks in markets have the biggest consequences precisely because they take everyone by surprise and run further as panic reactions feed the frenzy.
How does gold close at $975 on any given Friday and open at $1,050 on Sunday? A lot of factors could come into play here. A rash of U.S. bank failures. A government breakdown in a key market like China. And the kindling for an unexpected move is already in place with gold consolidating its 2009 gains in an ever-narrowing triangle between $865 and $1,000. That’s a lot of pressure and doubt building up.
What’s the doubt? Every time a gold bug goes on TV and says their precious metal is going to $2,000, most of us laugh. That kind of smirking doubt turns to shock and fear when an event happens that makes the unreal real.
What’s the likely near-term reality? If we get above $971 this week, $990 will come very quickly. And February’s high of $1,000 and the March 2008 high of $1,015 aren’t that much of a stretch at all from $990. Most of us, except goldstandard of course, would prefer gold move slowly like this in its ascent against inflation doves everywhere. But being aware of the potential for a black swan-type move won’t hurt you, either.
"Mind the risk, bank the profits!"