Gold Bears Smell Blood! Specs Pile into the Short Trade

Gold bears must smell blood. They’re sniffing the water like a grizzly who wants salmon for dinner. Are you and I on the menu?

I really do not know where gold prices will bottom. I do know they will. Financial markets — including gold — can do strange, unpredictable things in the short run.

But if you’re like me, you didn’t buy gold as a quick in-and-out trade. We have bigger plans.

Keep your eyes open. I see storm clouds gathering.

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As I announced a few days ago, legendary gold expert James DiGeorgia is joining the Uncommon Wisdom Daily team. This will actually be a homecoming for James. He was a top editor at Weiss Research before founding his own hugely successful business.

Among other feats, James is the one who taught Larry Edelson about gold and gold stocks, and other precious metals. I told Larry we were looking for another gold expert. He said James would be a great person to take Sean Brodrick’s work to the next level.

James will make his formal debut next week. As the former owner of a gold futures trading firm, he has great connections. I called him this morning to get his latest analysis.

He told me this morning that gold is under assault by Asian and European speculators. They amassed huge short positions as gold pushed higher. Now they’re bagging the profits.

Unwinding those trades could create some turbulence in gold and the precious metals in the next few weeks, James said. The picture is fuzzy because those same speculators are also losing big bucks in emerging markets.

Some of the gold selling is a desperate attempt to raise cash. That means it isn’t always rational.

With gold at such a turning point, James DiGeorgia will be a fantastic resource. He is plugged into global markets better than anyone I know. Look for his first Uncommon Wisdom Daily column on Monday morning.

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You can also look at gold as a kind of economic pendulum. The inverse pattern was very clear in the minute-by-minute charts this week.

  • When Fed speakers sounded optimistic, or new data buttressed the growth outlook, gold prices fell.
  • When the picture turned negative or officials suggested the “taper” may be delayed, gold went up.

I’ve seen this before. Think about it as a playground see-saw. When one side falls, the other goes up. Then they both reverse, over and over again. Kids love it — but eventually they lose interest and find a new game.

So it will be with gold, I suspect. The only question is when.

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I’ve talked before about the difference between physical gold and financial or “paper” gold. ETFs and gold futures are popular because they are easy to trade.

This week I heard — from several different sources — that large amounts of physical gold are beginning to change hands. CNBC reported early this morning that gold coin sales were at unbelievably high levels, as gold continues to dip. Some gold is literally moving across borders, in tons at a time.

If true, this means some VERY big players are getting nervous. They want gold, and they want it in their hands. They know digital gold isn’t the “real thing.”

Do they know something we don’t? James and I and the rest of our research team are keeping a close eye on these rumors. Something very, very big may be on the horizon.

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Gold isn’t the only market we watch, but we know our readers love to hear updates about the shiny yellow metal. Here are some other developments …

  • Today the Wall Street Journal reported the White House is assembling a short list of Fed chair candidates if Ben Bernanke decides not to seek re-appointment. The search is in “early stages,” they say.
  • I don’t believe it for a minute. Voluntary or not, Ben Bernanke is halfway out the door. I think Obama has already picked a replacement, too.
  • The White House is using the media to float “trial balloons.” They will float many names and see how markets react.
  • Speaking of media spin, economist Paul Krugman used his latest New York Times column to deny all knowledge of anything resembling inflation. Those who see what he doesn’t are “just whining.”
  • The stock market bounce may have run its course. The S&P 500 ran into resistance today. Volume has been low on the way back up — not a good sign for the bulls.
  • After a crazy Fed Week 2, next week all eyes will be focused on the Fifth of July. That’s when the Labor Department releases its monthly unemployment update. We could always be surprised, but trading may be quiet the first part of the holiday week in anticipation.

Have a wonderful weekend,

Brad Hoppman

Publisher

Uncommon Wisdom Daily

Brad Hoppmann originally grew up in Florida, but has lived in Baltimore, Charlotte and New York as well throughout his career. Always an athlete, he played varsity football and water polo at the University of Florida and received All-SEC/SCC honors.