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Gold Falling Too Far Too Fast?

Friday, 12 Apr 2013 | 5:55 PM ET
Market Mystery: What Gives with Gold?
Friday, 12 Apr 2013 | 5:00 PM ET
Sharp declines in the price of gold have left investors baffled. Why is the precious metal selling off so sharply?

Investors all over Wall Street are baffled by the sharp move lower in gold.

The spot price ended the session with its biggest one-day fall in more than a year. Gold for June delivery closed at $1,501.40 an ounce Friday; that's the lowest price since July 2011.

Although commodities rise and fall all the time, largely pros are surprised by the magnitude of the decline. They say gold should have a 'bid' – that is, the precious metal should have a constituency of buyers.

Considering central banks around the world are actively devaluing fiat currency conventional wisdom suggests gold should not have declined to this degree.

What's happening?

Fast Money trader Brian Kelly, founder of Shelter Harbor Capital, thinks the sell-off in gold has everything to do with developments in Europe. It's widely believed that the government of Cyprus may sell their reserves to offset austerity.

"People are asking themselves, if Cyprus sells – who else might sell," he explained.

According to a Reuters report, Portugal, Ireland, Italy, Greece and Spain, the so-called PIIGS or other European nations with financial troubles hold more than 3561 tons of gold. That suggests a great deal of selling may lie ahead.

Source: World Gold Council

Josh Brown, author of The Reformed Broker blog, thinks the sell-off has to do with technicals. Because the market is trading so technically lately, he thinks as gold breaks below key levels, pros sell.

However, that's no reason to buy; he cautions investors to stay away from gold. "You're probably going to hear all sorts of ex-post facto justifications for gold. Do not buy into it. Do not buy the dip. It's entirely possible something larger is going on and we don't know what it is, yet."

Karen Finerman, president of Metropolitan Capital agrees with Brown. She reminds that gold has no fundamentals in the same way that stocks have fundamentals. "Pros ride the trend and right now the trend doesn't give investors any reason to hold their positions," she said.

If you're nimble Brian Kelly thinks $1400 is a level at which you might consider starting a position. It cold be a level of support. But he too is cautious of such a sharp decline. "I won't touch it until I know more."


Trader disclosure: On April 12, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders;

Brian Kelly is long TREASURIES; Brian Kelly is long GILTS; Brian Kelly is long CANADIAN BONDS; Brian Kelly is short S&P; Brian Kelly is short DAX; Brian Kelly is short CAC 40; Brian Kelly is short KOSPI; Tim Seymour is long AAPL; Tim Seymour is long BAC; Tim Seymour is long INTC; Tim Seymour is long MSFT; Karen Finerman is long AAPL; Karen Finerman is long BAC; Karen Finerman is long C; Karen Finerman is long JPM; Karen Finerman is long WMT; Karen Finerman is long TGT; Karen Finerman is long GOOG; Karen Finerman is long M; Josh Brown is long WFC; Josh Brown is long GLD; Josh Brown is long XLU; Josh Brown is long TLT; Josh Brown is long XLF; Josh Brown is long TGT

For Frederick Cannon
KBW or an affiliate expects to receive or intends to seek compensation for investment banking services from Citigroup in the next three months.
KBW currently makes a market and/or acts as a liquidity provider in Citigroup securities.
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KBW or an affiliate has received compensation for investment banking services from JPMorgan Chase & Co in the past 12 months.
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JPMorgan Chase & Co currently is, or was during the 12-month period preceding the date of distribution of this report, a client of KBW.
KBW or an affiliate expects to receive or intends to seek compensation for investment banking services from Wells Fargo & Company in the next three months.
KBW currently makes a market and/or acts as a liquidity provider in Wells Fargo & Company securities.

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