Why Gold's Fall Is Not Final

| About: SPDR Gold (GLD)

Gold has fallen quite a bit in the last few days. You could say it has been a bad week. Does this mean you should sell because it has peaked?

The answer to this is no. First, as we have mentioned before, the price will become more volatile as central banks try to beat the price of gold down using paper options. Jim Sinclair has said as much on his website, jsmineset.

You can tell the recent fall in gold price is not a natural movement by looking at how gold fell. The following chart illustrates that gold had three violent take downs in one day. These are easier to see on a 5 minute chart.
Click to enlarge

(Click to enlarge)

As you can see, these movements were very sharp and sudden in an otherwise steady market. What could cause this? If all the small investors decided to sell their paper at the same time, we may have an explanation. Since this would be basically impossible in a normal market with millions of individual decisions being made on a constant basis, we know this is likely not the cause. It's especially unlikely the Chinese got up in the middle of the night and decided to sell en masse at precisely the same time.

Let's look at the following COT chart for gold. Only the commercials hold enough options, and they have increased their shorts lately.

Click to enlarge

(Click to enlarge)

There was a small redemption in GLD yesterday, but not enough to explain the sudden drops. The gold fall at 2pm came at EXACTLY the same time the dollar rallied. Uncoordinated markets do not have this type of response time. This could only have occured with an intervention by players with enough firepower. They are trying to shake the weak out of the market. But the long term prospects for gold, in my opinion, remain bullish.

As Chris Powell said:

There are no markets anymore, only interventions.

Disclosure: Author long physical gold