Gold gives up 20% since September high

In the Lead: “Tally Whoa“

Gold’s largest decline since September not only managed to change the price tags on various bullion items by a significant margin, but it has also altered the sentiment among market participants by a notable degree. Whereas just days ago the trading crowd exhibited bullishness levels higher than in more than a month, as of last night the same players and market-makers showed a level of gold-related enthusiasm that has not been as feeble since July.

Albeit nearly half of Bloomberg’s weekly surveyed industry individuals feel that gold could rebound next week (which would only be expected following the week that was) the apprehension that the 20% fall since September’s high might have ushered in a bear market remains palpable among them and, increasingly, amid the ranks of the investing public at large. The two metrics that generally satisfy the application of the ‘bear market’ label involve the aforementioned 20% decline from a top and the penetration of the 200-day moving average; both of which were achieved during this week’s 9%+ rout. Perhaps just as important a feature for such a possible shift in the market is the total denial on display among perpetual male bovines.

Friday’s opening action in New York was indicative of a day of recovery in the making, after four losing sessions. Spot gold started off with a gain of $23 per ounce at the $1,594 mark on the bid-side and silver gained 50 cents to open at the $29.78 level. In the ensuing first 20 minutes of trading that gain in the white metal was halved while gold retreated to the $1,585 area an hour later. Silver appears firmly entrenched in the bear’s grip, even as the heated debates about gold’s current paradigm show no signs of abating among some.

It is tally time (or almost) for the performers and underperformers of 2011; a year that many would sooner prefer to file away quickly when it comes to investing. A quick parsing of certain equities where one might have parked their piggybank stash shows some interesting highlights. Yes, one could have made 128.8% by buying Cabot Oil and Gas. Chipotle Mexican Grill returned a spicy 55.4% to its shareholders. Owning Netflix turned into a horror movie replete with a 62.2% loss on the year. No need to trot out BofA again; Mr. Paulson feels the pain.

However, had you bought stock in certain gold and silver mining firms, or the XAU, well, you might not have too much to write home about. The index has fallen by 18.4% thus far in 2011 (almost as much on the negative side as gold has risen net-net so far). Note that such underperformance has come amid some of the most gigantic margins ever to be recorded in the niche. As one analyst pointed out however, gold in the ground is not cash on the books. One “stand-out” that comes to mind is Northern Dynasty Minerals (NDM NAK), which, if bought on Feb. 4 at $21.02 a share, is now worth $6.05 a share (70% less). Ouch.

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