Gold Decline Prompted By Selling To Meet Margin Calls Elsewhere – Uptrend Still Seen As Intact

Posted on 04. Aug, 2011 by in Blog

Ladies and Gentlemena in Pawnland!Hold onto your shorts, we are once again on a wild ride as the Global Financial Markets begin to illustrate their  fundamental overall weaknesses. The unstainable DEBT crisis by the United States coupled with a Congress that is equally as inept, we indeed are in a continuation of the economic crisis. We are no where near the bottom of whatever that could be in my humble view.

The NYSE lost over 500 points today, August 3rd and overall almost 7% in the last 5 trading sessions. IN affect giving up all gains and reverting us back to a several year low.  Declining issues outpaced gainers by 2946 to 152 today. Unbelieveable!!

It does remain to be my view that we WILL see Gold Prices continue to hedge against such overwhelming and potentially catastrophic financial conditions. Gold has already begun to replace currencies and should remain a solid bank for us to profiteer on if we play our cards right.

Some of the analysts I have been speaking to around the world today believe that Gold will hit 5 – $10,000 an ounce in the not too distant future.

Here’s an interesting piece I pulled off the wire today, enjoy the read it is most certainly going to remain a wild ride – Jerry

Gold Decline Prompted By Selling To Meet Margin Calls Elsewhere; Uptrend Still Seen As Intact

04 August 2011, 2:07 p.m.
By Allen Sykora
Of Kitco News

(Kitco News) – Analysts are describing gold’s about-turn lower Thursday as profit-taking and liquidation to raise cash to cover losses in other markets rather than any kind of reversal of the longer-term uptrend.

Further, they suggested that a pullback was likely to be used as a buying opportunity in a market that still views gold as a safe haven, and that appeared to be occurring even as they spoke.

As of 1:36 p.m. EDT, gold for December delivery was down $7.70, or 0.5%, to $1,658.60 an ounce on the Comex division of the New York Mercantile Exchange. It fell from an earlier peak of $1,684.90 that is a record for a most-active contract. However, the market is already back up from a session low of $1,642.20 hit early this afternoon.

The weakness came on a day when the Dow Jones Industrial Average has been lower by as many as 372 points on worries about the health of the economy. Nearly every commodity is also weaker. Gold initially traded higher before getting caught up in the downdraft.

“It’s a little bit of liquidation to free up funds for elsewhere,” said Mike Zarembski, senior commodities analyst with optionsXpress. “I don’t think there is anything to interfere with the gold bull market. It wouldn’t surprise me if gold does fall further on long liquidation if new buyers don’t step up to the plate. As long as the uncertainty remains, the gold selloffs will be short and more buying opportunities.”

Sterling Smith, commodity trading adviser and analyst with Country Hedging, commented that gold had a “tremendous” run since the start of July. At the session high, the December futures were up $203.90, or 14%, from the July 1 low.

“The weakness in the equity market can very often be hard on the gold market when people have to raise cash and get nervous, and often positions with a large profit get sold in order to meet margin requirements and loosen up capital…,” Smith said.

“I don’t think this is the end of the bull market in any way, shape or form. I do think, however, as long as the equity market remains in trouble, we could see some weakness and selling in gold.”

Gold similarly fell when equities tumbled as the 2008 financial crisis hit, before the metal later went on to new highs, he said.

Some of the weakness is also from traders opting to book profits, besides selling to meet margin calls elsewhere, said Frank Lesh, analyst and broker with FuturePath Trading. Many futures traders use trailing sell stops that will kick them out of a market, thereby protecting their profit, when prices pull back. Stops are pre-placed orders triggered when certain chart points are hit.

“I always trail stops so if a market comes back off, it takes me out,” Lesh said.”Then you just buy lower and get back in.”

Some of the stops, however, were no doubt also from traders who just bought at the recent highs and were trying to limit their losses.

“But this isn’t that much liquidation,” Lesh said. “As a matter of fact, it’s healthy when you get a bit of a sell-off. You don’t want the thing to go straight up…You want a slow, steady build.”

There is an old market adage that parabolic moves in one direction are often followed by parabolic moves in the other when markets become overextended.

“Seeing this weakness should not surprise anyone, given the nature of the market,” Smith said. “It is a little bit overbought. You have a lot of longs with profits.”

The most recent data from the Commodity Futures Trading Commission showed that as of July 26, the net length of the non-commercial accounts—often referred to as the funds—stood at 269,489 contracts for futures and options combined, which was the most since October. The figure shows how many more contracts in which funds have bought gold than sold.

Robin Bhar, senior metals analyst with Credit Agricole CIB, issued a report Thursday saying he looks for more gains in gold. “However,” he cautioned, “given the sharp increase in speculative longs on Comex, the correction when it occurs, could be sizeable.”

Otherwise, he said, supportive influences include concerns about sovereign-debt burdens, the long-term value of certain reserve currencies, inflation fears, uncertainty about economic growth and the trend in which central banks are increasing their gold holdings.

 

By Allen Sykora of Kitco News

Hope ya’ all enjoyed the read!

Jerry Whitehead 

Pawnshop Consulting Group, Inc.

www.pawnshopconsultinggroup.com

www.pawnsymposium.com

jerry@pawnshopconsultinggroup.com

954-540-3697

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