It appears even gold remains caught up in the carry trades that have supposedly kept commodities aloft for months. Gold plunged almost 4% along with a deep sell-off in the general market. As the market suddenly cared again about the prospects for sovereign defaults all over Europe, traders and investors dumped gold – and almost any other asset – and ran for the hills with two yen for every one U.S. dollar in their pockets.
The chart below shows the next near-term support level for gold (priced in U.S. dollars). A break below the 200DMA should flush out whatever remaining momentum players jumped into the yellow metal just because it was going up and broke the $1000 barrier last Fall. As a long-term holder, I am keeping my eye on the longer-term prospect that desperate central banks will attempt to print their way back to solvency (especially in the U.S.). We are in an uncomfortable world where there exists no major paper currency that provides both liquidity and lasting safety (review “Global Debt Bomb” in Forbes for an argument against Japan) – not to mention that almost no developed/industrialized country even wants a strong currency right now. Gold still has its best days ahead of it as part of a “safe haven” portfolio.
(chart from dailyfx.com powercharts)
Be careful out there!
Full disclosure: long GLD