Wednesday, April 17, 2013

Gold at Most Oversold Levels on Record

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Bespoke Investment Group LLC - April 15, 2013: The price of gold is currently trading more than 4.5 standard deviations below its 50-day moving average, which clocks in at the most oversold reading since at least 1975. The chart shows the daily overbought / oversold reading for gold based on the number of standard deviations it traded above or below its 50-day moving average.  As shown, there have not been very many occurrences where the commodity traded more than 3.5 standard deviations below its 50-day moving average. In fact, there have only been ten.
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Michel Chossudovsky - April 16, 2013: The collapse of gold is due to naked short selling. It’s a trillion dollar operation. Once the price drops, the institutional speculators can repurchase paper gold in the spot market and cash in on a multibillion dollar bonanza. This type of operation can only be undertaken with the support and complicity of the Federal Reserve. It is a mechanism which results in the confiscation of people’s savings. It is an act of outright "financial theft".  

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Paul Craig Roberts - April 16, 2013: Consider the 500 tons of paper gold sold on Friday.  Begin with the question, how many ounces is 500 tons?  There are 2,000 pounds to one ton.  500 tons equal 1,000,000 pounds.  There are 16 ounces to one pound, which comes to 16 million ounces of short sales on Friday. Who has 16 million ounces of gold? At the beginning gold price that day of about $1,550, that comes to $24,800,000,000. Who has that kind of money? What happens when 500 tons of gold sales are dumped on the market at one time or on one day?  Correct, it drives the price down. Investors who want to get out of large positions would spread sales out over time so as not to lower their sales proceeds. The sale took gold down by about $73 per ounce. That means the seller or sellers lost up to $1,168,000,000. Who can afford to lose that kind of money? Only a central bank that can print it.

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Chart of the Day - April 17, 2013: After all, gold is now legal tender in both Utah and Arizona. The above chart illustrates how it currently takes 10.8 ounces of gold to 'buy the Dow' (i.e. the Dow / gold ratio) - a far cry from the 44.8 ounces it took back in 1999. Priced in gold, the Dow has been in a massive 13-year bear market. While the Dow (priced in gold) is well-off its dot-com record highs, it has been on a tear as of late. The current rally has resulted in a break above resistance of its latest downtrend channel as well as new post-financial crisis highs.