It has been an unsettling experience for late-comers who joined the gold rush near all-time highs of $1923 an ounce last September. The slide has become deeply threatening since the US Federal Reserve took quantitative easing (QE3) off the table six weeks ago – or appeared to do so – and signalled the start of a new tightening cycle. Spot gold ended the pre-Easter week at $1636.
“The game has changed,” says Dennis Gartman, apostle of the long rally who now scornfully tells gold bugs that he is just a “mercenary”, not a member of their cult. “They genuflect in gold’s direction; we merely acknowledge that it exists as a trading vehicle and nothing more. There are times to be bullish, and times to be bearish … to every season, as Ecclesiastes tells us.”
Gold has risen sevenfold from its nadir below $260 in 2001, that Indian summer of American hegemony, when the 10-year US Treasury bond was the ultimate “risk-free” asset , and Gordon Brown ordered the Bank of England to auction half its metal.
The stock markets of Europe, America, and Japan churned sideways over the same decade, and that precisely is the clinching argument against gold for contrarian traders. You avoid yesterday’s stars like the plague. “Gold is far too popular,” said James Paulsen from Wells Capital. It has reached a half-century high against a basket of indicators: equities, treasuries, homes, and workers’ pay.
Each interim low in price has been lower, and chartists tell us that gold’s 100-day moving average has fallen through its 200-day average for the first time since March 2009. It is a variant of the `death’s cross’. Ugly indeed, though Ashraf Laidi from City Index said the more powerful monthly trend-line remains unbroken.