Precious and base metals futures: Selling pressure
James Woodburn - Fri 16 Jun, 2006
...If you want to pick the top of a market, just watch the evening news. When commodity prices make it to prime time TV its over. This is what we saw earlier last month with both metals...As ever, the institutions and professional traders were already in. They had been in from the bottom, in fact. So they needed other, less informed traders to off load to. The general public make great candidates for this...
Precious and base metals futures absolutely tanked this week!
They were hurt largely by selling pressure as both markets continue to tumble from multi-decade highs set this spring...
August gold lost nearly $45 sending the price on a downward jerk to $566.80 per ounce.
Nearby June gold lost $44.30 to $562.50 an ounce. July silver lost $1.44 to $9.625. The most-active July copper contract fell 21.80 cents to $3.0105 per pound in New York.
From the high set on 12 May, August gold lost a staggering 23.5% of its value. From their 11 May highs, July silver fell 37% and July copper fell 25.5%. Yesterday's dollar drop was the June gold contract's biggest since 25 January, 1980, and ranks number 5 in terms of biggest one-day drops for gold.
Anyone who had long positions in the yellow metal and didn't get out will have got their fingers badly burnt this week...
But it's a drop that Resource Trader Alert subscribers were prepared for, as Keith Cotterill explained to his readers today...
"If you want to pick the top of a market, just watch the evening news. When commodity prices make it to prime time TV it’s over. This is what we saw earlier last month with both metals.
"And as ever, the institutions and professional traders were already in. They had been in from the bottom, in fact. So they needed other, less informed traders to off load to. The general public make great candidates for this.
"Generally, people think that as soon as an investment has made the TV, it’s time to buy. That's the impression you'd get from the news, at any rate. But wrong! It’s actually time to get out.
"I spoke to a friend the other day who had been speaking to a gold bullion trader. He said they had so many buy orders from the general public... but none from the institutions.
"There’s a surprise!
"The current sell-off – and yesterday’s price action yet again – is designed to get rid of the general public.
There’s no way they can handle a $45 drop in one day.
That’s $4,500 per futures contract in one day. Most novice traders will have panicked and jumped ship. The professional trader then says, thank you for letting me buy at a lower price.
"This is how the markets work - and it explains why we haven’t had a "buy" signal from gold or copper for the last couple of months."
The news from the New York trading floor revealed gold was hurt yesterday by long liquidation.
Sell stops were triggered throughout the metals complex, traders reported...
The mood "is surprise and wonderment at the swiftness of exit moves from funds," said George Gero, vice president with RBC Capital Markets Global Futures.
"When they sell all at once, no one wants to buy..."
Keith added: "Some traders point to softer crude oil, recent dollar strength and equity weakness as factors contributing to the sell-off.
"It has nothing to do with commodities, but relates to it. You may have noticed that the evening news is now talking about the drop in stock prices. So look for a bottom over the next few days."
Keith remains bullish on this market in the long-term.
But he warned his readers to heed this warning...
"The downside is not yet over. We could see $500 per oz tested for gold before prices become stable. We could then see it trade sideways for anywhere between 3 to 6 months."
But you can be sure that as soon as his analysis signals the next up move in the gold price, his followers will be well positioned to profit...
Regards,
James Woodburn
for The Daily Reckoning
