Friday, June 20, 2014

A thought about Thursday's gold move

Here's the daily candles for GLD:

That's one heck of a big volume printed yesterday, huh? 24.3M shares. That's about 2.4M ozt, or the equivalent of about 100 tons. What a way to break above the SMA(200), eh?

The rule is that a gap up (ignoring the whole overnight trade thing) followed with a large white candle with big volume is about the most obvious signal of a new bull market that you can ever expect to see on a chart. Whether or not it turns out to be true. Add to that the "false moves beget fast moves" interpretation to the bullshit May opex smackdown, and there's only two safe positions Wall Street Whitey will want to take re gold right now: long, or the sidelines.

And with 100 tons equivalent trade in one day, the net difference in GLD holdings would have to be some significant percentage of that. So a bear would need to see all that gold dumped back out of the vault into the market before the supply damage is undone.

Here's the equivalent chart for $GOLD:

Now look at the spot volume for yesterday. Still large, but not as big as the ETF.

Thus, yesterday's price spike was really the result of a few dozen tons worth of ETF buying from idiot amateur hedge funds and other assorted white trash. Not China or India. An ETF bought a big chunk of worldwide production in one day.

And the same ETF has spent the past few years dumping thousands of tons into China's lap, remember. So Whitey doesn't have a lot of gold available to buy back.

I had my eyes open hoping for this, but I didn't think it would happen. Wall Street Whitey buying gold for some misguided investment reason is a great way to build a price uptrend, because the physical market is so tiny compared to the paper derivative market. And with a strong upmove like this, there's only two positions that are safe to take: long or the sidelines.

If Whiteys decide to pile on to this trade, it can turn into a faceripper.

Whitey has nothing else exciting going on right now - the US market is in the doldrums, and only Japan looks capable of a breakout right now - so, if this move continues, it makes sense to expect a load of volume to pile into the miners as well. Where else can you get a 50% return in weeks?

This despite a bunch of bullshit stocks already being grossly overvalued (come on: DPM at $5? FVI at $6? SAND at $7?).

I don't know how such a strong gold pop can reverse, but it might.

But for the time being I'm going back to playing with juniors.

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