I have written in previous posts that the gold ETF, GLD, is a proxy for speculative desire to own gold. As long as it continues to lose tonnage, it is going to be next to impossible for gold to mount a SUSTAINABLE rally.
Check out this chart and you can see what I mean...
Now compare that chart to the following chart of Comex Gold...
Here is the point to takeaway from all this... As long as the holdings of GLD continue to shrink, speculative forces are not coming in on the buy side of anything gold. Obviously, someone is acquiring the gold that is being dumped out of the ETF but for investment/trading purposes, that is all irrelevant at this point. It was speculative interest in gold that took the price higher; while that is lacking, there is no force to take the price higher.
Remember, price is like a rocket ship attempting to escape gravity to ascend - it requires THRUST. If that is missing, price will tend to fall of its own weight.
The difference between that analogy and markets is that sell side pressure can come from two sources - longs who are liquidating and selling out of their positions or fresh shorts who are entering the market. If the majority of longs sell out, then it will take another force pressing down on the gold price from above to do the work of gravity. That is the new short sellers. Whether there are enough of them to press the price significantly lower in the face of buying by strong hands is a question we are all going to learn the answer to.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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