We think that the action in the gold market yesterday...and the reasons being given for that move this morning...is a classic example of how Wall Street (stupidly) tries to give a fundamental reason for EVERY SINGLE move in the markets...even short-term ones. The fact of the matter is that gold’s sharp decline on Tuesday...it’s biggest one-day drop in seven years...had very little to do with any new fundamental development. As we had been saying for several days, gold had become so extremely overbought (with a RSI chart reading at 90)...and so extremely over-loved (as bullishness among futures trading reaching 93%)...that gold had nowhere to go but down over the near-term.
This morning, we hear/read that some pundits are saying the reason gold fell so hard because we got some positive news about a vaccine for the coronavirus. Really??? The claims out of Russia from Vladimir Putin were ridiculous...and the Moderna deal for 100 mm vaccine doses was not surprising-news (and it only entails a vaccine “candidate”)......We also heard that gold rallied due to the sharp rise in interest rates. Say what??? Long-term interest rates jumped yesterday because inflation data (PPI) came in stronger than expected. Guess what? Higher inflation is POSITIVE for gold, not negative!!!! In other words, the fundamental news for gold yesterday was bullish...and yet gold still got clobbered.
No, we’re not trying to say that the fundamentals don’t matter. They always matter over the longer-term. However, sometimes...when too many investors move to one side of the boat on a given risk asset...that asset has no place to go but in the other direction of its recent trend. THAT’S what happened to gold yesterday.......Of course, the momentum-based algos also played a role, but they played a role on the upside as well!!!!!!! (It’s comical how ...
