Amid groundswell of bearish views – our look at GLD

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“Our flow is dominated by sellers across the board. Producers, funds, [high-net worth individuals] and ETFs all are selling gold in anticipation of the Fed tapering as early as Dec. 18.” This from a note from London market maker’s trading desk, addressing gold.

There is a veritable groundswell of bearish views on gold, which are rooted in the notion that central bank stimulus will start to ease with Fed tapering, leading to rising rates. There is also an absence of inflationary fears. In fact, the fear in Europe is of potential deflation.

A piece in this morning’s Business Insider captures the bearish sentiment and analysis. Here’s a sampling, after which we provide a technical view of GLD.

Credit Suisse

“We have no doubt that gold is in a bear market,” says the commodities team at Swiss investment bank Credit Suisse, repeating the view it first gave in February’s End of an Era report.

“Financial bubbles tend to unwind faster than they inflate,” the bank’s analysts write in Gold: Decline & Fall.

“If gold were to continue to retreat along its current trajectory, the metal would be trading close to $900 per ounce by the end of 2014.”

Societe Generale

“Regardless of the precise timing,” agrees French bank and London bullion market maker Societe Generale, forecasting an average gold price of $1050 in the final 3 months of 2014, “underpinning our negative view towards gold is that the ultra-loose stance of monetary policy is gradually unwound.”


Swiss investment bank and London market maker UBS yesterday cut its average 2014 forecast to $1200 per ounce from $1325, also pointing to a tightening of US monetary policy.

A drop to $1050 could signal a “decent buying level”, says UBS analyst Joni Teves. But while “physical buyers are expected to provide some support at the lower levels, this is unlikely to be enough to fully offset the selling.”

Toronto Dominion

“Strong Chinese gold imports are being overpowered,” agrees Bart Melek at TD Securities in Toronto, “by sharply lower ETF demand.”

The Canadian bank’s analyst also cites “worries expressed by highly leveraged speculative investors that the 14,700 tonnes of vaulted gold since 2002 may start hitting the market once real Treasury [bond interest] rates move materially higher.”

More evidence of bearish bets ….

Latest data from US regulator the CFTC yesterday showed speculative traders such as hedge funds raising their bearish betting on gold to a 4-month high in the week-ending last Tuesday.

Net of those bearish bets, the so-called “Large Speculators” net bullish position in gold futures and options fell to 162 tonnes equivalent. That compares to the 3-year average of 497 tonnes.

Smaller speculators trading gold on leverage through futures and options meantime cut their net bullishness last week to just 6 tonnes equivalent – the lowest level since early July’s negative reading.

Private investors choosing to trade physical gold, in contrast, last month maintained their positive sentiment near a 6-month high says Bloomberg today, citing the latest Gold Investor Index from BullionVault.


Here’s how the gold EFT, GLD, looks from a technical perspective:

As illustrated in the weekly chart below, GLD shares started their waterfall decline after breaking a 5 year uptrend line (green band) near$ 160.  The index subsequently plunged to $ 114 (blue band), where it found some support near the 2012 breakout level. Shares then failed at $ 139 (red line and arrows) on an oversold bounce and have now drifted on lower volume back towards this aforementioned support zone.

Given the overwhelming bearish sentiment (which given the decline we think is a tad late) and the lack of volume on the sell down, we would not be surprised to see GLD try to bounce here.  No stock , ETF or bond goes down forever and GLD does seem, from a volume perspective, to have exhausted the sellers in the near term.  That said, we expect an oversold bounce.  However, if $ 118 gives way then long term support for GLD is down near $ 100.  Given the secular advance it will probably see $ 100 before all is said and done, however, we just believe it may go up for a while before going back down.  Last thing to consider when reading the above comments a drop from $ 185 to $ 114 probably discounted a lot of the bad news!

Click to enlarge chart


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