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Old 07-27-2010, 01:38 PM   Nav to Top  #1
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Default Gold Continues To Turn To Dust For Retail Longs

The collapse of gold continues as the SPDR Gold Trust (NYSE:GLD) is trading at $113.64, down -1.88 (-1.63%). Stocks like Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), Randgold Resources Ltd. (ADR) (NASDAQ:GOLD) and Agnico-Eagle Mines Limited (USA) (NYSE:AEM) are all getting hammered. Gold has dropped off a cliff over the last month for many reasons, both technical and psychological. Technically, the simple answer is gold was extended on the daily and weekly charts, pushing to new all time highs almost daily. The more interesting side of the analysis is the psychological aspects. First, to fully understand this, one must understand the contrarian perspective and how big institutions will purposely push a commodity, stock or market in one direction to the max, in order to get the small, retail investor and mutual fund in that direction. It makes perfect sense if you think about it. Institutions buy a massive amount of a position. The only way they can unload that size is if they get everyone else to buy that position as they sell it. Simply put, the gold trade was a perfect example of driving gold up, creating fear and panic to get the retail investor and mutual fund to load up on gold and sell right into them. Once the retail investor, mutual fund are long at the top, there are no other buyers to continue to push it higher and it will collapse. Just think of the buying hysteria that engulfed gold in the past six months. Truly a top.

When is the time to buy gold? Long term I have little issue with the fact that gold will rise higher. Five-thousand an ounce is not out of the realm in five years. However, the time to buy is when the retail investor and mutual fund are pushed to the limit and dump their positions. When everyone else hates gold, buy. Institutions will be.

In the short term, the major target for the GLD is the daily 200 moving average. This is at $112.00.

Gareth Soloway
Chief Market Strategist
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