I’ve mentioned that a lot of people have recently declared that gold is at the end of its run. One of the folks who did it, and caused me greater consternation, was Greg Guenthner. He writes a daily commentary called “The Rude Awakening” that I get emailed as a result of subscribing to the “Capital & Crisis” newsletter from Chris Mayer. All of these guys are part of the Agora Publishing outfit, a group generally very much aligned with the views of the Casey Research team.
Guenthner is a CMT, a technical analysis guy. He wrote this piece a couple of months ago, and lately has been pointing out the concerning performance of gold at a time when it should be outperforming. As a result, he is yet another one who thinks investors should look elsewhere in the future for stronger returns. Granted, he is using the charts as the basis for his argument, but he is someone by affiliation who you would expect to have greater conviction about the long term prospects.
So, it came as a shock then when his email arrived this morning and I read the following:
“More new highs for the Dow and S&P. Investors still hate stocks. But stocks don't care...
Gold is a different story. After a decent start to the week, gold took it on the chin yesterday. It coughed up $35, coming to rest near $1,555. If you've paid close attention, this puts the yellow metal in the crosshairs of our danger zone. Any significant violation of this support could lead to a swift selloff.
But wait...
A Goldman note hit the Street early yesterday advising clients to short gold. It also includes a price target of $1,450. That's not totally outrageous--but it is more than $100 lower than where we sit today.
As I read through the brief, I noted several similarities to my recent analysis.
I have told you many times that I've been skeptical of recent price action. I didn't like how gold reacted to the Cyprus crisis. And I've also noted strong selling at key support levels. Despite piles of economic evidence saying gold should move higher, it couldn't catch a bid.
But something about this Goldman report stinks...
Earlier this week, I wrote that it would be a good idea to get out of the gold ETFs and miners if you hadn't already done so. I'm standing by that one. But this Goldman call for an outright short of gold itself is fishy--and I'm starting to rethink my strategy.
The short gold call is working now. Gold is at $1,560--and printed as low as $1,552 yesterday afternoon. But I'm still skeptical of how this plays out on a longer-term basis.
Here's my gripe:
Why test the waters with a short selling recommendation now--after gold has fallen more than $250 from its October peak? What's the motivation here? And more importantly, when is a report like this ever anything but a contrarian indicator?
Bottom line: you don't want to be running hand in hand with Goldman when a report like this comes out. It might work initially, but it's a good way to get burned. Don't short gold.”
Huh?
It certainly didn't take much for him to reverse course on long term prospects. My best guess is that he was potentially looking for a way to hedge his call. Because he knows that it is still probably premature to make.
