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Professional Independent Trader, 15 years. Started as a equity index futures floor trader, now day and swing trade, stocks, treasury futures, index futures and commodities. Believe in correlation of markets, must undertand all markets to trade one well. (aka Jim Rogers) Self taught by... More
  • Gold Crash Alert -- Risk To 1200 31 comments
    Sep 6, 2013 7:48 AM | about stocks: GLD, TUR

    This article will be very short. In point form I will lay out why Gold (GLD) prices have near term risk to 1200 and possible even a 1000 handle.

    1. In spite of the war drums beating for a strike on Syria, and nearby markets like Turkey (TUR) reacting by selling off, Gold has struggled to rally alongside a large oil rally. Resolution of this scenario will place additional pressure on gold prices.

    2. Technically, Gold has failed at the underside of the longer term broken trendline, and is as I write this testing the shorter term trendline from the June 28 lows under 1200. The test will come @ 1360, about 7 points lower than where we are in DEC Gold. Just below is the key 1350 level, which has been significant as a pivot point.

    Taking out this trendline, which is possible on a strong jobs number on Friday morning, opens the door for much lower prices.

    3.Interest Rates. Higher rates are toxic for gold, which pays no dividend, and so higher bond yields provide competition for investment dollars.

    4. Higher US Dollar -- Toxic for gold as is priced in dollars.

    5. Strong US data, along with a recovering Europe and china. Fundamentally, it is difficult to rationalize top dollar for gold, when any "crisis" which enhances its value seems to be on a diminishing trend.

    6. Sentiment -- Has retreated substantially from the extreme bearish numbers developed during the last decline.

    That's it. Short Gold futures, Long GLD puts, Long TUR.

    Disclosure: I am short GLD.

    Stocks: GLD, TUR
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Comments (31)
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  • Macro ,,
    couldn't agree more - this article "nailed it"
    6 Sep 2013, 08:38 AM Reply Like
  • 1. Why would countries affected by war react by selling their gold ? Right now, in Syria gold and silver are about the only means of payment, the Syrian pound having plummeted by a few hundreds of a %.
    2. You might have a point here. TA is not my cup of tea (-leaves).
    3. India faces high interest rates and yet, gold, expressed in rupees, goes from one record high to another.
    4. During the Weimar Republic hyperinflation period rates were very high, and yet, gold thrived.
    5. Strong US data ? Why does the Fed hesitate on tapering then ? Why isn't Draghi not more optimistic and why doesn't he increase the ECB interest rate?
    6. Sentiment on gold is still very bearish in the West, except by GS. They bought when Paulson sold.
    6 Sep 2013, 08:42 AM Reply Like
  • Author’s reply » Well; that BLS # was a surprise. Thesis stands however.
    6 Sep 2013, 08:42 AM Reply Like
  • Hello Macrotrader


    Does your thesis also imply that $GDX is a short? In other words $DUST is a good option?
    10 Sep 2013, 11:24 PM Reply Like
  • Author’s reply » Yes, am long DUST
    11 Sep 2013, 08:02 AM Reply Like
  • Author’s reply » Another factor in the mix is oil prices. Observe the reaction to a "weak" BLS. The Fed will be considering this. Its difficult to imagine they welcome a much higher oil price. The President has articulated he is concerned about asset bubbles. In my mind Gold prices would be at a much higher downside risk than Equities.
    6 Sep 2013, 08:52 AM Reply Like
  • Macro,
    You said "strong US data".
    The latest BLS weren't that strong, were they ?
    Well, anyway, bad news means good news # ?
    6 Sep 2013, 09:13 AM Reply Like
  • Filipo,
    perhaps u missed the plethora of good economic data points that were recently released on all fronts..


    It seems the naysayers like to "cherry pick" one data point and disregard the 99 others..


    Good luck
    6 Sep 2013, 09:19 AM Reply Like
  • Fear,
    I was only referring to the latest BLS numbers: there's a record 90.5 million Americans out of Labor Force.
    The Labor Force participation rate is quite low, I'd say.
    These data certainly don't ask for tapering, do they ? Remember, employment was one of the conditions BB had in his mind to start tapering. So, as I said: bad news is good news.
    QE goes on, equities thrive, gold thrives...
    Who's unhappy ? Not me, since I'm invested in both.
    I'll let you know when I step out.
    6 Sep 2013, 09:31 AM Reply Like
  • filipo


    Good luck !
    6 Sep 2013, 09:32 AM Reply Like
  • Fear,
    thanks and good luck to you too. We might have different opinions on a number of subjects, but at least we have a similar cultural background and we understand each other concerning investment strategies.
    6 Sep 2013, 01:57 PM Reply Like
  • Author’s reply » Interesting the Euro giving up its gains. Will gold follow?
    6 Sep 2013, 09:01 AM Reply Like
  • Macro,
    "Will gold follow? "
    Keep on dreaming..
    6 Sep 2013, 09:13 AM Reply Like
  • Author’s reply » When Oil corrects --- expect a serious downdraft in gold then. Seems to be correlation.
    6 Sep 2013, 02:24 PM Reply Like
  • Back in 2003, only the weirdos and conspiracy theorists (like me) bought gold. GLD was not born yet and there were very few choices for retail investors. In my city of 1 million, there were only 2 places you could buy physical (aside from Bank of Nova Scotia).


    No question, gold got out of hand at $1800. An old client tracked me down who I dealt with 7+ years ago and asked how she could buy gold. At the point, the top was clearly in.


    Of course, the weekly MA is trending down and gold may correct in terms of time (sideways) for awhile. I absolutely agree - a sustained rising interest rate environment will kill gold, as well as most commodities.


    However, this run in gold doesn't "feel" over. I am not long or short gold at this time, but I wonder if we don't get one more big move up to $2000 (or whatever) in the next few years. Most pension and mutual fund managers have moved from hating gold to being indifferent. They need to love gold for this to be over. 401(k) investors need to have a gold option. The CFA Institute needs to bless gold.


    Gold may benefit from a flight from stocks and/or bonds. Gold is a very small market and aside from the past 24 months, gold hasn't burned anyone in 30 years. I would think that gold needs to suck in a new round of non-goldbugs before the end is nigh.


    From a technical perspective, it would be great if gold goes sideways for 12-24 months and then perks up. A long-term breakout would be an ideal buy signal. I agree with Macrotrader100 - if you have to choose right now, you should be short
    8 Sep 2013, 09:25 AM Reply Like
  • Author’s reply » For those following I have covered the shorts on gold futures at 1321, and sold out of Dust in the 35's. Still long a handful of GLD puts.
    12 Sep 2013, 04:43 PM Reply Like
  • Macrotrader100 -
    I am a new follower and am amazed at the timing and accuracy of your call. What exactly do you look at that caused you to make this great call?


    Also it seems u adroitly switch between $DUST and $NUGT. What do you look at over here? Are you planning to open a position in $NUGT?


    Hope you don't mind sharing your secret :-))
    12 Sep 2013, 06:48 PM Reply Like
  • Macro,,


    Nice call, Always good to take profits,


    I believe there is plenty of downside left here , IF there is a rally it should be capped at 1350-1360 . so i believe the risk /reward is still there ... I'm short via DZZ


    Best of luck
    12 Sep 2013, 04:49 PM Reply Like
  • Author’s reply » I have gone flat with potential uncertainties from Syria, if things get derailed, budget fight might cause stock selloff and gold rally. Not sure -- would be a seller on a big bounce in gold.
    12 Sep 2013, 08:10 PM Reply Like
  • Macro,
    Exactly my point. How exactly will US politics develop concerning Syria. I'm quite dumbfounded at the lack of seriousness US foreign office treats this crisis. For investors this is a pain in the a** as uncertainty prevails.
    14 Sep 2013, 05:28 AM Reply Like
  • Author’s reply » Dust is a wasting asset. It is a trading asset, not a long term hold.
    12 Sep 2013, 08:15 PM Reply Like
  • Author’s reply »


    Fading GS has historically been a good trade. I am not prepared to chase the lower prices. A Syria squeeze is possible. If it doesn't show, that is a powerful tell and GS is correct, I would get back in shorting gold.
    13 Sep 2013, 07:24 AM Reply Like
  • Macrotrader - With the resolution news from Syria do you expect gold to fall week of Sep 16th? Is it a good time to be in DUST for the coming week? Also FOMC is next week, whats ur take on that? Will they taper or won't they and how does it impact DUST?
    14 Sep 2013, 04:02 PM Reply Like
  • Author’s reply » The fundamentals for gold are terrible! There is no investment case for Gold at current levels -- period. If you are long -- get out now.


    Today's reaction to no news is key. No-one seriously believes an October taper. India raising rates and weak longs are the factors here. Imagine what will happen with an actual taper or dollar rally.


    I was short, covered at 1320, and reestablished at 1355 on the India rate hike. Don't say you haven't been warned.


    Aggressively short gold and related stocks.


    Title of this blog post should be -- risk to 1000
    20 Sep 2013, 07:34 PM Reply Like
  • Macro,


    I stayed "short" during all of the recent volatitility as i had mentioned to you earlier, there is more downside to come..


    The $60 "rally" was nothing more than shorts who 'thought" it was about tapering decided to cover on the fed announcement..


    Agree with ultimate target of $1000, I further believe gold is in a secular bear market that will last quite a while..


    Good Luck
    20 Sep 2013, 07:48 PM Reply Like
  • Author’s reply » Update. Over the last couple of days I have observed the gold market in light of the govt shutdown threats and equity weakness, and the bottom line is I have layered back into my short position.


    Again -- reaction of markets is key here.
    30 Sep 2013, 08:54 PM Reply Like
  • Wow MacroTrader: How do you do it? Your timing is precise to the minute. Can you do a stocktalk with your updates?
    1 Oct 2013, 12:23 PM Reply Like
  • Author’s reply » Too Busy, frankly. Then again unlike so many I am not shilling for a paid newsletter for $19.95. So I post when I feel like it, frankly.


    And a lesson there -- those are the one you listen to -- with nothing to sell.


    I sold some Dust at 36.85, and a few puts, but still have most of it.


    1200 is a chip shot here on any deal.
    1 Oct 2013, 01:15 PM Reply Like
  • Very good MacroTrader. What do you think of individual Silver mining stocks? Would you consider them at these levels? I am looking at PAAS specifically. Would appreciate your thoughts.
    1 Oct 2013, 03:30 PM Reply Like
  • Author’s reply » Nope -- not until a washout. Don't really know it, anyway.


    I think PM's time will come, but might be next year ---


    With a deal -- I would expect panic selling in the PM's and a huge US dollar rally. Like 1200 within days.


    If we don't get it -- Suppose I would cover. Who knows?
    1 Oct 2013, 04:41 PM Reply Like
  • Author’s reply »


    Next Article!
    28 Oct 2013, 03:51 PM Reply Like
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