What follows is an excerpt from Canaccord Wealth Management’sMorning Coffee report.
Gold broke a key support level ($1,532) on Friday, which triggered some climactic panic selling.
Silver was also crushed. Friday will be the day many will remember as the day that finally broke the hardened gold bulls’ back. The SPDR Gold ETF (NYSE: SPY, Stock Forum) traded monstrous volume on Friday. The ETF’s 30-day average volume is 9.1 million. On Monday, the price was down 1.3% to $156.70. The 52-week trading range is $159.71 and $127.13.
Gold’s harsh correction year-to-date (down 11.5% in U.S. dollars) has been explained by improving signals in the U.S. economy, which has increased the perceptions of a shortened life to the Fed’s QE3 program.
We have seen liquidation in the COMEX non-commercial gold positions and ETF holdings and related redemptions in precious metals funds.
As Business Insider put it, “[T]he collapse in gold is not about gold, but about vindication for a large corpus of belief and economic research, which has largely panned out. It’s great that our economic elites know what they’re talking about, and have the tools at their disposal to address crises without creating some new catastrophe.
Things aren’t great in the economy, but the collapse/hyperinflation fears haven’t panned out, and the decline in gold is a manifestation of that,” accelerated to the downside.
Those who still remain bullish on gold and gold equities were found at their favourite watering holes on Friday, uttering the following:
- I believe that macro-economic conditions support sustainably high gold prices, including record global U.S. dollar liquidity, low real interest rates, and Eurozone sovereign debt concerns.
- The gold price and equity valuation multiples appear oversold to the point where I have seen contrarian insider buying.
- 2013 guidance generally appears conservative.
- The sector will likely be coming out of a peak in growth capital spending towards the end of this year, which paves the way to increasing net free cash flows and potentially higher dividends.