What Makes Gold and the GLD ETF Go "Nuts?"

9-14-2010: An Article about: What Makes Gold and the GLD ETF Go Nuts on A Very Bullish Day

Gold Gone Wild: What are the TWO Things We Needed and Got Today? 

Market timing of gold and gold ETFs cannot be done without understanding this insight. You need to know this if you intend to use market timing to enter and exit the gold market at sensible points.

We will use 9-14-10 mid-day pricing just as an example, but you can use this TIP on any market day. 

The move in the gold price can be broken down into two components for those who normally buy gold using US Dollars. Kitco.com gives this key market timing data at no charge.  We've gone over this before when gold was being SOLD.  Now it's being BOUGHT and the numbers are bullish.

The gold price is determined by:

1. The change in the value of the US dollar

AND

2. The extent of BUYING vs. SELLING of gold itself worldwide.

That means if US dollars are being SOLD, the gold price will increase today and that is exactly what is happening.

So for example, around mid-day on 9-14-10 gold is UP $11.95 due to DOLLAR WEAKNESS ALONE.

But today, unlike what was happening during the recent shallow pullback in gold and the GLD ETF, the world is BUYING GOLD, not selling it, so gold is UP $13.85 due to ACTUAL GOLD BUYING and the GLD ETF is up 2.03%.

The NET increase in gold is a whopping +25.80 INCREASE based on $11.95 in dollar weakness and +13.85 due to gold BUYING.

The BEST time to invest in gold is when gold is going up because GOLD IS BEING BOUGHT AROUND THE WORLD not simply because the dollar is going down. If the dollar adds a boost by going down, that can definitely help. The dollar is doing exactly that today, so now if the dollar either stays relatively stable or drops further, there could be a much more sustainable rise in gold prices.

CONCLUSION:  The fact that GOLD is UP or DOWN a certain amount is NOT enough information to judge what GOLD will do longer term. To determine whether GOLD is actually BREAKING OUT OR BREAKING DOWN in a strong way you need to know if there is REAL GOLD BUYING AND NOT just US DOLLAR WEAKNESS.  TODAY there is both, so the Bulls have a good chance to stage a breakout that sticks.  Realize that one day over a breakout point is NOT enough. 

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