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A New High In Gold Leads To A Significant Correction


  • Risk-off rocket fuel for the yellow metal turns into a dud.
  • Gold stops just below the $1700 level and tanks.
  • Stocks have the worst week in years.
  • Junior gold mining shares follow the yellow metal.
  • Time to buy GDXJ on a scale-down basis - the Fed will cut rates.
  • Looking for more stock ideas like this one? Get them exclusively at Hecht Commodity Report. Get started today »

The final week of February began with a giant thud in markets, which only got worse as the week progressed. The spread of Coronavirus to South Korea and Italy created panic selling in stocks and commodity markets. The DJIA dropped over 1,000 points on February 24 and continued lower throughout the week. The Coronavirus was a trigger, but the selling created the environment for the plunge that followed. Crude oil, which had been taking the stairs higher from below the $50 level earlier in the month, got back on the elevator to the downside and fell to a new and lower low as it approached the late 2018 bottom by the end of the week. Agricultural commodity prices experienced pressure, and copper fell to the $2.50 per pound level. There was price carnage on the first day of the final week of the second month of 2020, and the days that followed got worse. Risk-off conditions gripped markets across all asset classes. US bonds rallied in a flight to quality. Gold and silver posted gains, initially. The yellow metal rose to almost $1700 per ounce, which was a new high and the highest price in seven years on February 24 before correcting significantly lower.

The bull market in gold began in the early 2000s, but the next leg to the upside started last June. Falling interest rates in the US and around the world lit a bullish fuse under the precious metal that central banks hold as part of their foreign currency reserves. The Fed may have no choice but to take significant action to stimulate in the current environment. The VanEck Vectors Junior Gold Miners ETF product (NYSEARCA:GDXJ) fell like a stone.

Risk-off rocket fuel for the yellow metal turns into a dud

At first, the selling in markets across

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This article was written by

Andrew Hecht profile picture

Andrew Hecht is a 35-year Wall Street veteran covering commodities and precious metals.

He runs the investing group The Hecht Commodity Report, one of the most comprehensive commodities services available. It covers the market movements of 20 different commodities and provides bullish, bearish and neutral calls; directional trading recommendations, and actionable ideas for traders. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis. The author is long gold

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Comments (52)

waldipup profile picture
0k the gold drop is over .
Like a rubber ball...bouncy bouncy, bouncy bouncy. @waldipup
waldipup profile picture
Yeah , yuh jus' gotta hang in there with a base position , maybe a secondary trading position just for fun , and wait for the next price explosion that takes place every decade or so .
You missed my point @waldipup . I meant this:


Excellent data and commentary,thanks.
gold has stabilized along with the market. seems like miners over-reacted to the downside last week. let’s see what happens on monday?
Steven Jon Kaplan profile picture
Excellent commentary as usual, Andrew! Thank you very much. Investors are incorrectly perceiving coronavirus and the stock-market drop as being deflationary whereas stimulus to counteract it is ballooning worldwide and will prove to be highly inflationary, while likely also postponing a global recession by more than a year. This will cause mining and energy shares in particular to double or triple within a couple of years.
any recommendation for good gold/silver stocks? thanks
LikeaRock profile picture
Don’t forget about SILJ, that will at least quadruple if the Silver market heats up.
Bill Fleckenstein gave some great commentary on the QTR podcast today regarding his thoughts on the market dump last week and the current and future prices of gold and silver.
When the markets sell off the fund manages need to get money fast - Precious metals and related stocks become the money well especially after they were driven up.
Here are the facts. The Fed NEEDS to save the markets, for so many reasons. A market crash is NOT an option. Rate cuts are priced in and it will take more than that for the markets to rebound. Therefore its totally possible that we see some extreme tactics from the Fed. The only release valve is the dollar. If they succeed in making it fall (which they need to have happen) then look out.

If the market crashes, liquidity dries up, tax receipts dry up and so on and so on. This is unacceptable in an election year and even if there wasn't an election in the next 7 months it would be the end of the world. US stocks matter and need to keep going up. Therefore it doesn't matter how ridiculous the measures taken are, they need to be taken. I wouldn't be short gold right now if I was you.

And by the way, I doubt the virus is really the main reason for the crash, obviously it doesn't help but do you remember the hikes and tightening the Fed did 12 months ago? Well this bubble wasn't going to escape the consequences that easily just because of a 100 basis points in cuts? I've been waiting for a pullback in stocks (and so was Dalio, did you forget about his $1B in puts he bought a few months ago? before the virus was even a problem), there is always a lag of 12-18 months.

Not saying you should buy stocks now but keep in mind that central banks will do whatever it takes to stop this thing from unraveling. Good luck out there.
Vooter profile picture
"A market crash is NOT an option."

LOL...did you tell the market that?
I see that major grocery chains are preparing should there be a run on stock...if I had a few gold coins I guarantee you I would sell those coins for food
LikeaRock profile picture
" I see that major grocery chains are preparing should there be a run on stock...if I had a few gold coins I guarantee you I would sell those coins for food"
Well for myself I would just use some Silver ,unless I was buying truckloads of food :)
don't you think the markets have already factored in the interest rate cut (s)?? I think it will take a big drop of at least 0.75 now to make any difference in the markets gold or stock market....might get a short bounce....but any interest rate drop is also sending a message of how bad things are...so it sends a mixed message...wild times...what bothers me is that all of us don't want to believe that gold and the dow could be in a new bear market..we keep thinking that soon we are returning to recent highs and beyond.....but who knows....I dont
DKB2 profile picture
Friday was a great day to stock up on some PSLV..9% NAV discount!

Happy Trails...
Is $GDXJ a second derivative play to Commodity (Gold)? $GDX holdings in the process of Aquire and Merge phase likely the catalyst in $GDXJ move up faster than $GDX.
GDXJ moves quite the same as GDX since 2017 when "they" changed GDXJ from juniors to "mediors". Before that, GDXJ was really more volatile, thereafter, almost the same.

Last few days GDXJ was a bit more volatile than GDX...
necto profile picture
really like your article, but I think we will see a little below 1500.
I agree @necto . You don't repair that kind of damage over a weekend.
JackWolf profile picture
I wonder what the acceleration in the occurrence and the scale of natural disasters will have on these markets. We are, after all, in an abruptly changing climate no matter what the three monkeys refuse to accept.
Don't worry about it @JackWolf . There is a 6 mile in diameter asteroid due to collide with the earth next week that no one sees yet. It is about the same size as the one that took out the land roving dinosaurs and about 75% of all life 66 million years ago. As long as you have a refrigerator and a fist full of gold coins you should be OK unless it comes down right on top of you. Remember, the dinosaurs didn't have refrigerators or gold for security blankets.

@jadejet @OlderThanDirtDave
JackWolf profile picture
Ya, well this climate asteroid is already hitting, @kimbillro And, btw, silver is easier to trade.
WPM as an alternative to the GDXJ? Company has telegraphed very positive earnings call next week. This could be a very attractive entry point.
Investor since ‘73 profile picture
I hold both GDXJ and WPM, which has outperformed greatly for me. I also hold AUY, even added a bit to it last week, which has proven to be catching the falling knife so far but I believe PMs were used as a source of funds to cover margin calls and subjected to some profit taking, both of which I hope will prove to be short term phenomena. Last quarter WPM reported avg sale price of about $1,470 per GEO and even with flat production, the additional $100/GEO should be pure profit. Loving it.
WPM = Wampum? Yes, I have a bag of Wampum Corn Chips.

@Investor since ‘73
Investor: Before the coronavirus crisis, I would have said we would be at 33/34 before the call and 35/36 after a very positive quarter and reasonably bullish guidance. Now, I am hoping we get back to 30 and bump up to 32 after the call. Of course, this requires market cooperation. It could be a helluva ride this week. I suspect that the market will fall further as more cases are reported in the US. And what happens when many cases are reported in major urban areas? The truth is, no one knows.
01 Mar. 2020
This will be an interesting week ahead. Messaging from the Fed will set the tone. Gold and silver fell out of bed last week and hit the floor, I can't see much downside from here. It was a fire sale for miners. Good names should bid up from here.
01 Mar. 2020
Watch the dollar!!!!!!Finally realized the debt Thurs.and Fri.
I suspect that much of the frantic selling in the stock market came from over leveraged positions that resulted in an avalanche of margin calls in an over leveraged market. Like an avalanche, margin calls in such a market snowball as investors rush for liquidity. In that environment, you sell what you can, not what you want to sell. I suspect that much of the fall in the gold market reflects the scramble for liquidity in the stock market.
I continue to believe that gold is a wise investment in a period of excessive debt, particularly in a period of unusually low rates where risk is often mispriced. For those who don't have gold, this looks like a good buying opportunity if you are a long term investor.
01 Mar. 2020
Agreed, the long term case for gold only strengthened last week.
Yes, but GDXJ down 25%. Ouch! That's a bear market by definition.
I agree last week was an opportunity to add Gold. The sell off was due to a very specific reason. There is a massive liquidity injection in the next few weeks so Gold will likely end up at 1700 end of this week.
What’s a better bet GDXJ or GLD?
GDXJ if gold is going up. None if gold is going down. @Uncle Rico2003
necto profile picture
@Uncle Rico2003 even better NUGT if gold grows
pascia profile picture
1800 is inevitable I dream
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