Home > Main > Gold just closed below the lows of a Massive Bearish Formation

Gold just closed below the lows of a Massive Bearish Formation

January 27, 2011

It remains to be seen if this will result in further selling.  This formation took months to create, and the play out might take months to unwind as well.  Last time there was a large pullback in Gold, it lost 30% in total – it took a year, but 30% from the highs.  Gold bottomed in 2008 when Lehman collapsed, and since then has proceeded to double in value in just over 2 years.

That’s a big bull run, and with this recent news that someone huge got taken out of the market, well, I wonder if there is anyone else out there with huge gold positions that might like to protect some profits.  A few different fund managers bought tons of gold.  Tons.  A ton is 2000*16 = 36,000 oz, or 3,600 futures. That isn’t that many futures really, but when you are talking multiple tons, it can add up even if you have deep pockets.   Lets see, $100 * 36,000 is only $3.6M, so it cannot hurt that badly if you have a few tons.

I haven’t been checking on John Paulson, but at one point, he had 96 tons of gold.  $3.6M * 96 = $356M.  That’s a big swing in anyones account.  But Paulson isn’t the only one with huge stakes.  There are many, many funds out there with huge stakes in GLD.   And these funds really do not care what they are long or short, they just want to make money.  These are smart people who are used to buying and selling large postions.

Some of these funds might feel the need to put some money in the bank.  They will want to take profits, especially if this is a huge payday for them.  I expect there are a few other funds that will want to bail, now that gold has broken out of a huge topping formation that took months to make.

Not only that, the trend in Gold is now clearly down.  You can expect some trendfollowers to start piling into gold on the short side.  The close today will be very, very negative.  I expect a lot more capitulation very quickly.

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