Stock investors have been fleeing GLD because they believe the general stock markets are now a better place to invest capital than gold. As the stock markets continued to relentlessly levitate without any material selloffs to rebalance sentiment,
euphoria slowly set in. This entranced foolish stock investors into believing
nothing could drive a general-stock selloff, that the stock markets would power up indefinitely.
So they sold gold low in order to buy general stocks high. Selling low and buying high is the recipe for financial ruin, and the very-overbought, fundamentally expensive, and euphoric stock markets are way overdue to reverse dramatically. The moment the headline stock indexes fall far enough for traders to believe their uptrend has decisively reversed, the capital rotation out of gold and into general stocks will also reverse.
Gold’s weakness in 2013 and the extreme antipathy towards holding GLD shares is a direct consequence of unsustainable stock-market euphoria! It hasn’t happened before in this secular gold bull because we haven’t seen truly euphoric stock markets since 1999 before this gold bull was born. When the stock markets inevitably roll over, the selling pressure on GLD is going to vanish overnight.
by A. Hamilton