Another Gold Rally Bites the Dust

Jeff Macke

As tensions in Syria are receding this week, so is the price of gold. Having tacked on more than $200 per ounce during a two-month rally, gold has given back one-third of the advance, dropping back to technical support levels below $1,350. A 5% drop may not seem so bad but it's salt in the wounds of investors who've been long since the yellow metal peaked at $1,921 two years ago this month.

Commodities trader Dan Dicker of thinks gold investors should get used to disappointment. Conceding up front that he called gold "unsafe at any price" near the lows in June, Dicker says the rally was driven by a flight from equities and bonds over the summer. That trade seems to have come to an end as stocks push back towards 1,700 on the S&P500 (^GSPC).

Any good news in emerging markets, China, Europe or stability in the bond market puts pressure on gold. "This looks like a very, very bad year to be a long-term gold holder," says Dicker.

Unless it somehow moves over $1,675 by year-end, gold will post an annual decline for the first time since 2000, bringing an end to the longest streak of annual gains since at least 1920. Not that the true long term gold bugs have much to complain about; an ounce of gold sold for $275 at the start of this millennium.

Perhaps not surprisingly Dicker suggests taking profits and then some. "I think gold today looks like as good a short as I've seen in some time," he says. "When those retail customers roll over they tend to do it fast and they tend to do it for big numbers."

There's no fear on the street just yet but if the stock market rally is for real there's going to be a flight from gold and most other assets into the end of the year. For those who were smart and lucky enough to have caught the July and August rally, putting in some trailing stops probably makes sense.

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