The US markets took another beating yesterday, with the Dow losing over 1200 points in a single session. So what started as a nice sideways consolidation up at the all-time high of 29500 has turned into an absolute drubbing, with no real sign of the bottom yet.
Gold, meanwhile, hung in pretty well, as you would expect for a safe haven during a sudden drop. Here’s the 1-month chart of GLD, the unleveraged gold ETF, compared to the Dow 30 average over the same period. The charts are pulled right after the open on Friday, so the last day is “today” but will probably be just a tiny stub. But this way you’ll see the magnitude of the drops, in their full glory.
The Dow is the sad-looking blue line, GLD is the candlesticks. Not hard to see that gold itself held up very well compared to the Dow.
Gold miners held up pretty well until the last two days. Yesterday was crushing though, with about a 7% drop in the GDX (senior miner ETF). Premarket says more drop to come today there.
This is very reminiscent of 2008-2009, though happening a lot faster. Back then we had about a month of dip-and-dead-cat-bounces before the market finally gave up and headed down big. Your grizzled yet still friendly Gold Enthusiast would attribute this to the rise of index trading funds and retirement pools all hitting the ripcord at once, accelerated by the ever-present black-box trading algorithms, which chime in like a huge choir. (Don’t want to demean ANY human choir by comparing it to the army of black boxes out there.)
You’ll hear a lot of “when will the pain end” in the media. Remember their job is to sell entertainment, not always news. We suspect there is still down to go yet, as the coronavirus situation continues to unfold. Everyone staying at home is not good for production or profit; you can’t run an entire economy on blogging. Someone somewhere needs to be creating new wealth, not simply recycling existing currency. (Ask Japan about that sometime.)
The bottom will come when it comes. Until then, there’s still more down to go.
The Gold Enthusiast
DISCLAIMER: The author holds no position in any security mentioned in this article. The author is long the overall gold sector via positions in NUGT, JNUG, a few junior miners, and covered calls on part of the NUGT and JNUG positions. The author may trade options positions in NUGT and/or JNUG in the next 48 hours if market conditions warrant but has no plans to make any other trades in the gold sector in that timeframe.
The SPDR Gold Shares (GLD) was trading at $152.06 per share on Friday morning, down $1.94 (-1.26%). Year-to-date, GLD has gained 22.98%, versus a 8.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Mike Hammer
For 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group.