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Gold Collapses on Cyprus Fears

April 14, 2013

 

The fear of Cyprus having to dump billions on the gold market in short order precipitated a collapse in gold below trading range support that has held since 2011. The Eurogroup meetings suggest Cyprus will soon receive ESM approval for their aid, but the Cypriot central bank may be forced to sell its gold to raise up to an additional $9B of capital. The EU wants Cyprus to "raise" up to another $9B via gold sales. Fear of Cyprus dumping this much on the market led to the breakdown in gold today, although note that it was accompanied by a breakdown in silver, crude, and base metals as well – and follow-through on the downside next week by these commodities would suggest deflation, economic slowdown, and could become a spillover threat to currently still strong bubble stock markets globally.

 

Now let’s watch for downside volume capitulation in the metals ahead and for longer-term support levels below. June gold fell $80 an ounce on the day -5.13% breaking below key 1500 level support on very high volume, while silver fell -6.13% and below 27 level support on high volume. Copper also fell a sharp -2.64% on high volume although the April lows were not broken on the day. Palladium is still trying to hold at its April lows too -2.19%, platinum fell -2.5% and broke down from a double-top formation carved out since last September. Industrial metals are on the verge of a breakdown below support that has held since late 2009, and should be watched for downside follow-through next week that would be economically bearish in implications.

 

For buy/hold stock investors, the Goldilocks party continues for now.  However buy/hold commodity investors (particularly precious metals) are getting crushed.  At some point in the future, a major selloff may also occur in stocks. This is why we have long advocated non-correlated asset diversification strategies that can perform independently of traditional buy/hold strategies, and can potentially profit while the markets are falling.

 

Access CTA trading performance and rankings to learn which programs have been outperforming during this period.  Our Novus Precious Commodities program remains profitable YTD going on the 7th consecutive profitable calendar year.

 

Past performance is not necessarily indicative of future results. The risk of loss exists.

 

 

 

 

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