Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
I mentioned Friday that gold was coming into a key multi year support level which was promptly broken early in the session leading to a serious amount of selling once that technical level was breached. Based on the volume it appeared to be a “liquidity event” i.e. someone(s) big was purging their position. This morning the carnage in precious metals is even more severe – as I type near the 7 AM hour, you have gold down over 5% and silver nearing 10%. At times like this technical analysis is going to take a back seat to margin calls. Certainly going to be interesting times for those such as John Paulson who has a bunch of his net worth in gold, and has an entire hedge fund dedicated to it. I wonder if this is in (small) part inspired by the bitcoin craze of the past few weeks, or more of a sign of deflationary signals. Either way commodities simply have not participated (with the exception of oil to a degree) at all in the past few months of rally – most peaked near the turn of the year, along with China. Copper is also in a tailspin, although not quite to the degree of the precious metals.
Here are some long term charts of the two precious metals using their ETFs. You can see multi year support breached. In orange are levels the trade this morning. Of course for equity investors the question is, does this sort of dislocation foreshadow a move in U.S. (or Japanese) equity markets, or do these two stand alone insulated from things affecting the rest of world markets, due to central bankers.
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Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
