Why did the gold price crash, and will it happen again?

by birtanpublished on August 23, 2020

Gold took its largest single day drop in years on tuesday what happened here to talk about this and answer this question is gary wagner editor of the goldforecast.com gary it's good to see you during this

Week and i only have two questions to start off this conversation what on earth happened and can we see another major pullback well first of all it's great to be back with the kitco audience and

Share what we can to enlighten them on a market that is not only in a historical level but is now experiencing extreme volatility extreme volatility what kicked this off

Why are we seeing extreme volatility at the top is this just profit taking or is this the end of a bull rally personally i do not believe it's the end of a bull rally we we have entered some sort of a

Correction the question that i'm asking myself and the technical studies i'm looking at for the answers is whether or not this will be a shallow and short correction or an

Extended correction gary have you ever seen a hundred dollar drop in gold in your career offline you're telling me that when you first started in this business this wasn't even

Possible correct that is correct back in the early 80s when i began as a commodity broker and a cta they had limit moves on gold platinum and palladium they could only move so much

Kind of like the s ps do now with the circuit breaker and they would stop trading for the day so to answer your question have i seen this kind of move in a single day it's been very rare if i've ever seen it

At all so were there any macro triggers that you could attribute this to that's what is most interesting the run-up had a series of fundamental undertones

That created this extreme bullish market sentiment for the precious metals the dollar going lower of course was a great part of that but that was due to a federal reserve accommodation and being very very dovish

So i think that the correction we're witnessing now could be very short-lived it could be extended but it is still unfolding as we speak today uh gold bounced back a

Little bit higher but not by much 20 dollars as of uh 4 3 30 eastern time now gary tell us uh what are the charts showing you right now well obviously as we broke through

2000 what first impressed me was the fact that unlike the time and middle of 2011 where gold pricing surged past 1900 but it was sustained for under a day in other words

It just came back down and basically went to lower pricing we saw prices hold above 2000 for quite some time my sentiment is that it wasn't a macro event

But rather the market getting too crowded i have good friends that know i've traded gold for 20 or 30 years and they've never asked me how they go ahead and purchase gold

And i got many calls from those friends over the last couple of weeks that tells me we've got the herd mentality moving into the market and it's time to be careful i think the reason for the sell-off yesterday

Was pure and simple profit-taking okay so just from a technical perspective have we broken support is this the start of another uh short-term bear trend well if you look

At the technical indicators and the most important one that i follow is the 50-day moving average the 200-day will show you a long-term trend we're far above that but we never broke below the 50-day

Moving average and what that tells me is that on a technical basis uh even yesterday's exaggerated move did not cause any extended major chart damage okay um let's look at your uh projections now

Because you you've based um you've based your projections on the fibonacci sequence if i'm not mistaken and you're looking at a higher gold price level in the coming days uh trading days is that correct that is

Correct basically the model that we use is both fibonacci retracement and fibonacci extensions and we use this off of rallies and corrections

So that for example when we look at the move from about fourteen hundred and fifty dollars up to the record highs that occurred starting in mid-march but that was one extended rally

Now we're in some sort of a correction so we're plotting where could that correction uh subside at or conclude 1943 is a 23 retracement and 1848 is the 38

Retracement the interesting thing is in action overseas we saw the market drop to 1874 extremely exaggerated and pop back up to now where it's trading at 1942 this in a six hour period of time so

What i am seeing is even with a strong correction and a really really massive price decline there were buyers willing to buy the dip and that is what will make this correction short-lived

You told me offline as well that you uh you had already uh sold off some of your positions at above the two thousand dollar announce level what what triggered you to sell it off at that level

My sense was last week that we saw the market hit a relative high between 2080 2090 on a couple of occasions we didn't get that follow through because 2100 is the next level

And there's an old adage if if traders can't move a market higher they're going to try to move it lower and i think that's kind of the case when it ran out of steam at that price the the the buying pool kind of dries up

The sellers become prevalent and the buyers pulling profits on their short-term trades become prevalent to me it was more a matter of trailing our stops

Up and not wanting to get caught in the trap that many got caught in back in the middle of 2011 because i watched that market come down much quicker than it went up once it broke 1900 a lot of people got

Hurt and i didn't want to see that mistake become repeated this time be my fault are you buying at these levels gary yes yes um i really believe that there is a high probability that this current

Level at 23 will hold if not it doesn't have that much further to go maybe 1943. so what i've been suggesting uh to to my clients and subscribers is that we we initiate the etfs

Slv as well as gld i'm also telling them from my subscribers that like to accumulate and hold that they begin accumulating again in fact the article that i wrote

Yesterday was we we saw the market sell off dramatically what a huge opportunity and it's kind of a second chance for those who got in pull some profits in our flat it's a

Good reentry point for those uh individuals and investors who felt they missed the boat and then kind of got scared once it got past 2000 and felt they got priced out of it

They're getting a second chance so i'm really excited about the potential because our current model indicates that we will see a correction but that will be followed by a final

Rally taking gold to a new all-time price high what's this new all-time price high i gotta ask you since you brought it up yeah i've got two different models right now

One's looking at around 22.50 the other one is sitting at around 23.40 okay gary something interesting happened this week on tuesday is gold drop prices uh for equities dropped as well we saw the major indices traced back

Before climbing back higher we saw a similar pattern um in march although of course as you know that the uh the v shape recovery in stocks took a lot longer than just a few hours

Uh could this um could you draw a parallel between what happened today and what happened in march were they the same drivers were they completely different well you know it's interesting as we

Talked about before the show typically there is an inverse correlation between the safe haven asset class and risk on or equities one is moving up and the other one's moving down

There's a unique circumstance which is when the federal reserve is doing quantitative easing with low interest rates that that affects both equities as well as gold and silver uh

With bullish undertones it increases the market sentiment but what you're referring to is a little bit different what tends to happen is if the stock market comes down hard it has a dramatic

Sell-off you would expect gold to go up in light of that and typically we might see it go in tandem to the downside and my belief is in one explanation is that traders are

Liquidating everything they can to pay for the margin calls to hold on to their stocks in other words they are in panic mode and that's why we might see gold sell off when equities sell off but

Historically they are running in a negative correlation one moves up the other moves down you're right gary i i do want to bring up one notable exception that i've

I've personally observed which is the run-up in gold prices between um uh 2009 to 2011 or when it reached the 2011 uh previous all-time high and during that period as you know stocks also recovered from

Their uh their their lows in 2009 following the financial crisis uh what happened there why do we see a long-term positive correlation over a period of three years well you know it the the correlation is

Extremely interesting and i've studied it uh for many many years following that the occurrence of that event initially when the financial crisis first emerged which was around 2008

Was until 2009 that we effectively said well we've got a financial uh crisis here and a potential recession the federal reserve stepped in shortly after and began the first ever round of

Quantitative easing now if quantitative easing means that they swell their balance sheet they make massive purchases of mortgage-backed securities and treasuries as well as other assets

When they do that they devalue the dollar so if we're pairing gold against the dollar and the dollar goes lower by virtue gold has to go up that same amount

And then the only other variable is whether traders are buying or selling it but here's what was fascinating both moved up in tandem gold was trading at around 700 it moved up to about a thousand

More quantity vision came they continued to move up but something happened in 2011 in which the bottom fell out of the gold market but u.s equities continued to climb in

Other words there was that disconnect when gold fell in the middle of 2011 equities kept climbing and did so what for the next seven or eight years so

It was a unique scenario then can we draw is the current financial crisis similar to that of uh 2008-2009 there are some similarities but there is a key distinction

The similarities are that there in both occasions there was massive massive use of monetary tools not only by the federal reserve but by all the core currencies whether it's china

Russia india bank of japan bank of england they were doing whatever they had to do to prop the economy up they did that then and they're doing that now the difference as far as i'm

Concerned is in 2009 there was an end game in other words they knew that the uh crisis was caused because of bad loans it was a banking crisis there was a lot of loans that were

Subpar that should never have been written so that it was an issue that they could solve in other words they passed the uh the frank dodds act which really tightened credit really made it so that if you bought a

Home you were qualified for it and that in essence solved that issue once that issue was solved it was a period of healing and a period of recuperation and a period of growth once again

What's different now is that even if the pandemic were to end tomorrow they have what multiple companies working on vaccines there are many that are in their first and second

Stage and they're proving to have some real potential but let's say for example god god willing the vaccine was created tomorrow everyone was vaccinated the next day

Nobody was sick and everybody was going back to work that being said the federal reserve could then begin to tighten or lighten up on the accommodative easing

But they've got a big bill they have allocated close to another 4 trillion and this time the treasury department on the first round of stimulus was three trillion now they're talking about an additional

Two the united states has the largest budget deficit in history that did not occur in 2008 and in 2008 the issues were extremely visible transparent and you could resolve them

And then move forward it's not so clear now so gary i know you have a bullish case for gold i'm just going to play devil's advocate here now what we saw on tuesday again was the

Largest drop in year single day drop for most analysts this drop has broken their support level uh you know what we're seeing today on wednesday could just be a dead cat bounce

And uh you know the trend from a technical perspective one could argue was really just bearish from here uh macro indicators bond yields have spiked up which might have been one of the reasons why gold went

Down on tuesday how could you still maintain a bullish sentiment given everything else i've just i've just brought up here okay well the first thing we want to take a look at

Is that serious decline that we had on friday i think was needed well deserved and had we not seen that happen we set up ourselves for the potential of gold just

Really having an extended correction but if you've looked at how it's traded over the last say two three weeks you've had a succession of higher closes compared to the prior close higher

Closes compared to the open with two red candles a red candle simply means it closes below the open only on two occasions and the next day it would pop up these to me are kind of circuit breakers

In other words gold moved in a nearly parabolic manner to the upside without having a release of the pressure so to speak it will come down much harder than what we saw and it will be a longer and more

Extended correction i think the sell-off we saw was necessary it was needed and it now allows the market to recoup and move to higher pricing doesn't mean that it will

And then the second point i want to raise is that whereas we're seeing the market possibly move up now after coming down the other day we could see something like an abc markets don't move straight

Up or straight down and abc simply refers to a correction that has one drawdown then it moves back higher and then a final drawdown we could easily be seeing that gary this

This question came in from a viewer and uh the question states are we going to see a correction in gold in the median term if we get a vaccine to the coronavirus the assumption here is that once we have

A vaccine there would be less risk less volatility less fear and less need for safe haven asset what do you think well i mean there is validity in that statement however

The one caveat to that is that even if a vaccine was created today the economies globally are in terrible shape i mean our gdp contracted 33 percent largest contraction in history even if everything was the way it was

Prior to the onset of this pandemic with the expenditures of the federal reserve and the expenditures of the treasury and global central banks there would still be repercussions to those

Actions and so the fact that if we get a pen down a vaccine to the pandemic things will change and we will see a slow and methodical move back to normalcy whatever that new normal

Is but just having the vaccine won't change the facts that the government has spent trillions upon trillions to support the economy uh gary as as we enter into an economic recovery

Um and if i've told you that as uh as as consumer demand increases and as a as uh the money velocity picks up as a result uh you're going to see inflation as a

Result how is that going to weigh in on your gold prices uh long-term gold price forecast right interestingly enough if you listen to the press conference on

July 29th by chairman powell he talked about a disinflationary period followed by an inflationary period because of recent actions of the fed inflation simply means to me that the dollar has less value it might have

Bought me three pieces of bread now it buys me two pieces of bread as such when you get inflation and the dollar loses value vis-a-vis the negative correlation between the dollar and gold mean

That it will definitely move higher okay do you see any scenario in the next 12 months that would be bullish for the us dollar that is hard to say it's possible however what we are seeing right now

Which is what i have to really react to is the fact that we have seen the u.s dollar come off of these highs mid march at 103 and my technical indicators say it could go as low as 88

It's trading at around 93. so interim and short-term i actually see a higher potential for more downside the dollar has been king it has been strong for quite some time

But it is retracing and i believe that that trend will continue and the reason being is that the the central banks here are deflating the dollar more than other central banks are depl

Deflating their core currencies because really it's a uh a race to zero when it comes to the value of different currencies okay uh gary i want to close on uh silver because silver as you know also

Drop like a stone on tuesday uh would you attribute uh this drop to the same causes as a goals drop is it just profit taking for silver as well absolutely absolutely and there was a

Line in blade runner that said a candle that burst burns at both ends burns twice as bright for half as long silver is that is that is that the original blade runner or the new one the

Original one and i paraphrased it to say the least but the point being is that silver has been so dynamic and it's made such a huge leap in turn it's almost tripled from the lows below

12 in four and a half months and the fact that it isn't near the record highs is also interesting but it's going to gain more on the way up and it seems to have that same effect

It's going to be the leader in percentage drawdowns when we're in corrective mode gary i want to thank you for coming on the show uh and uh giving your insights and um best of luck this week for

Trading thank you so very much and i want to wish all of our kid co viewers the best in training as well this is an interesting time to be involved in gold and silver thanks

Again and thank you for watching kikko news i'm david lynn stay tuned for more you

Related Videos

Yamana gold has recently launched a new standard in tailings management and here to talk to us about this initiative is senior vice president of health safety a...
He's peter hogg director of precious metals here at kikko peter welcome back it's good to be here michael uh everybody was predicting this uh precious m...
Gold traders took profits this week as the bullion saw the largest single day drop in years on tuesday but how are hedge funds an institutional investor's p...
Gold prices have taken a hit tuesday but can this downward trajectory continue uh here to talk about this correction and his long-term forecast for gold is joe ...
He's will ryan ceo of granite chairs will welcome to kitko thank you michael good to be back let's talk precious metals versus treasuries in a note toda...
Gold took its largest single day drop in years on tuesday what happened here to talk about this and answer this question is gary wagner editor of the goldforeca...
Gold is seeing a lot more volatility this week as bond yields have finally started to rise joining me today to talk about his macro views and what to look out f...
Welcome to kitco news i'm niels christensen the gold market continues to see surging momentum but can this momentum last in an environment where we're s...
Okay let's shift gears now to the base metals uh elon musk in his second quarter earnings call uh has made this statement i'm just going to read it tesl...
As gold hit the much anticipated two thousand dollars announced this week our next guest warns that more volatility is coming up joining me today is george giro...
Our next guest is frank holmes a guest everyone's familiar with on our show he's been calling for gold prices to hit all-time highs for basically ever a...
All right we have a few minutes left so i have one last question for the both of you what are the major risks that you're looking out for today we're al...
gold futures hit new record highs speeding 2011 year highs of 1920. anna's remained very bullish on gold stating that the two thousand dollar price tag is ...
On the same day police have made - at first unrelated of arrest they arrests a gentleman named Al and they caught him red-handed selling drugs so it's an op...
What I want to do in this video is get a better understanding of oligopolies and we'll be talking about it I'll they got pulleys we'll be talking ab...
What I want to do in this video is think about why it's so hard for a monopolistic monopolistic competitor to make money in the long run and just as a remin...
We've spoken a lot about monopolies monopolies monopolies and we've spoken a lot about perfect competition perfect competition and we kind of view them ...
What I want to do in this video is review the revenue and cost graphs for a monopoly for a monopoly so let's up here let's draw the demand curve for the...
For those of you who are curious and have a little bit of a background in calculus I thought I would do a very optional and when I say it's optional you don...
Based on what we've done in the last two videos we've been able to figure out what the marginal revenue curve looks like for the monopolist here for the...