On Wednesday, investors who had recently put money to work in gold started wondering if they made a terrible mistake.
The precious metal fell off the face of a cliff, back below $1800 after peaking above $1900 just one day ago.
Like the traders so often says gold takes the stairs higher and the elevator down. At risk of being too irreverent, did gold bugs just step inside the express car down? Or is this the pullback that they’ve been waiting for – ahead of the next leg up?
According to strategic investor and commodities expert Dennis Gartman the sell-off is not a buying opportunity at all – the buying opportunity is behind us.
In fact, he thinks what’s happening right now is a classic sign of a top. “This was one of the great bubbles of our time.”
”I pay great attention to something technicans call an outside reversal – that is, the market made an all-time new high – closed on the lows of the day – then closed below the previous day’s lows. If you don’t pay attention to that and don’t liquidate you’re going to find yourself in a lot of trouble.”
In fact, Gartman is putting his money where his mouth is.
”I sold a lot of gold in the last 54 hours – I wish I had sold everything and I wish I was short.”
And he’s not alone. Trader Steve Cortes thinks the patterns in the gold chart now are eerily similar to those in 1980 – when gold completely topped out for years to come.
“There are a lot of similarities,” he says, which you can see in the chart to your left. “In 1980 gold went parabolic very much as it just recently did.”
Gartman agrees. “When we see correlations like this we have to pay attention to them.”
In addition to the technicals both traders feel the fundamentals will also generate selling pressure, now.
Of particular concern is that the general public probably got into the gold trade during the later innings. “The public owns gold at a high prices – and now any rally will be met with sellers,” Gartman says.
And he also thinks big hedge funds will be damaged by the sharp decline. “Hedge funds who are in this trade are losing huge amounts of money in gold” – and that too could generate liquidation pressure.
”I think this thing could go down another $150 in a short span of time. I think we go to $1650 in the next month and a half,” Gartman says.
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Trader disclosure: On August 24, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Patty Edwards owns (FXC) and (XLK). Steve Cortes owns (JNJ), (WMT), (EXC), (SO), (GS) and (MS). Steve Cortes is short the British Pound. Steve Cortes is short the U.S. Ten Year Treasuries. Steve Cortes is short Gold & Silver.
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