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Gold Is At Last Ditch Support

  • Written by Syndicated Publisher No Comments Comments
    December 22, 2013

    Gold has been a big loser this year, its loss of 28% for the year earning it headlines.

    But the bigger picture is its severe two-year bear market since 2011, its loss of 37% since its top in 2011.

    With its latest rally attempt having failed at its 30-day m.a., gold is now sitting just a fraction above the last clear level of potential support, at its July low.

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    That’s based on gold’s losses if an investor bought and held gold via an exchange-traded fund like GLD all the way down.

    Unfortunately, after its gains have become exciting and are in the headlines, gold often attracts a lot of people on Main Street who are not investors. 

    We saw it in the excitement near the top of its previous bull market from $45 an ounce in the early 1970’s to $850 an ounce in 1980 (just before its long bear market back down to $250 by 2001).

    And gold’s most recent 10-year bull market from $250 an ounce in 2001 to its peak at $1,900 in 2011 certainly qualifies as a tremendously exciting run.

    Unfortunately in the excitement in 2010 and 2011, as happened at $800 an ounce in 1980, folks who were not investors and did not have brokerage accounts in which they could buy gold via GLD, instead fell for the pitches of store-front gold dealers that seemed to pop up on every block, selling gold in the form of bars and coins.

    I’m hearing more and more stories of the wake-up call they’ve been getting when they try to sell their gold to stop their losses. It’s not an auction process like the stock market where there are buyers and sellers with only a fractional spread between bid and asked prices.

    Dealers sell at retail and buy at wholesale. How else could they make a profit? And the difference is usually around 20%. So under those conditions a decline in value of 37% via the etf GLD from the $1900 an ounce peak in 2011 becomes more like 57% in terms of physical gold. And that’s often too big a loss to swallow so they continue to hold onto those bars and coins bought at $1,800 and $1,900 an ounce that were going to be worth $3,000 an ounce within a year or two.

    It recalls the admonition of Robert O’Hara, vice-president of the Securities Investor Protection Corporation (SIPC), who said after the 2000-2002 bear market in stocks, “We’ve been at this for more than 50 years, and we see the same problem over and over again. Investors are enticed in during bull markets, but then don’t know what to do when things turn sour later.”

    Did the Fed just lower its target for unemployment in the nick of time?

    The Fed had been saying all year that even if it began to taper back its QE stimulus, it would not begin raising interest rates until the unemployment rate fell to 6.5%.

    With the unemployment rate above 8% in 2012 and hardly budging, that seemed to give the Fed plenty of time. But the way its been coming down lately, 7.3% in October, 7.0% in November, at its FOMC meeting this week, and emphasized by Chairman Bernanke in his press conference, the Fed changed its target, saying it will not raise interest rates until the unemployment rate is “below 6.5%, well below”.

    Just in time?

    Florida reported yesterday that its unemployment rate fell to 6.4% in November from 6.7% in October.

    But there was not so good news behind the headline number. State forecasters estimate that the decline of labor force participation (the percentage of people working or looking for work) over the last two years, as people give up looking for work, has accounted for more than half of the decline in the unemployment rate. They said if the same percentage of people were still looking for work, the unemployment rate in Florida would still be above 8%.

    To read my weekend newspaper column click here:  The Fed Will Still Provide Massive QE Next Year – But

    Subscribers to Street Smart Report:

    In addition to the charts and signals in the ‘premium content’ area of this blog, the new issue of the newsletter is from Wednesday evening is in your secure area of the Street Smart Report website.

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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