Thursday, December 20, 2012

Whats up with Gold?

Since the 2008 crisis, we have seen huge rally in GLD and SLV prices, mostly driven by unlimited quantitive easing and future inflation expectations. Easing has devalues the USD which has been driven the asset prices higher. So basically, GLD and SLV prices are inversely correlated. Dollar goes up, GLD goes down and vice versa. This is the relationship I understand, but since November I have been noticing something strange. While the dollar has been tanking, GLD has been plummeting as well. Fed has announced unlimited QE till 2015. Japan annouced further easing and with Europe crisis still looming more easing will be required there. Also, world economies are doing reasonably (atleast there has been no major change in the view since November) so the commodity demand should drive the prices higher. Here are three reasons why I would go down -
1) Reduced Demand -  Demand mostly driven by consumers in India and China and Soverign eocnomies buying it. Indian market has held up reasonably well, while China seems to be rebounding. More central banks are buying it as well. Should move the prices higher.
2) Dollar - Dollar is going down so GLD should be moving up. Not happening right now.
3) Manipulation - Year end dumping? This is the only rational thing that comes to my mind.

Clearly there is something else going on which is beyond me (if anyone has a better explanation, I would like to understand).

Either way, I though i would post some charts and also a chart on why I picked up some GLD and NEM today.

Weekly chart of GLD since 2008. Since 2009, GLD has been moving in lock step with SPY and gaining strength with

Daily chart shows disconnect from November.

GLD - I picked up because of strong support in 158.50 region. There is also a gap fill. If it goes to 156.50 i woud add another 1/2 position. Hopefully we should see a bounce in New Year if the manipuation is over.

Finally, NEM chart. Its self explanatory. I hope you caught some of the bounce.

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