Two Well-Timed Gloomy Forecasts From Technicians

The first is mentioned at the end of a Marketwatch report that mostly reads like a profile of three hedge-fund wunderkinds which have gone for gold. The first, of course, is George Soros. The second is, of course, John Paulson. The third is the less-mentioned David Einhorn of Greenlight Capital. He's lightened up a bit on his gold holdings, but he's still holding on. His pro-gold presentation at the Value Investors Conference is worth a read; it may have influenced Jean-Marie Eveillard:

"I have seen many people debate whether gold is a bet on inflation or deflation," he said. "As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s, but collapsed in response to Paul Volcker's austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked."

Einhorn added, "Prospectively, gold should do fine unless our leaders implement much greater fiscal and monetary restraint than appears likely. Of course, gold should do very well if there is a sovereign debt default or currency crisis."

To get back to the gloomy technical analyst mentioned at the end of the report, it's Tom McClellan. He uses the recent lackluster performance in GLD with respect to gold itself as his cue:

In a recent note to clients, [McClellan] pointed out that, when gold prices move upward but GLD ounces move downward, it's a sign that the gold rally isn't likely to continue. When GLD ounces move up along with gold prices, he emphasizes, that provides confirmation of the move.

Examining GLD assets can also be a means of gauging investor sentiment on a larger time scale, McClellan says. GLD, he writes, is now the easy way for the average investor to get invested into gold, without having to rent a safe deposit box.

"So when the assets grow or shrink too much on a larger time scale than this," McClellan notes, "that can be a sign of a sentiment extreme. For now, I see the tepid response in GLD ounces as a sign that gold's pop is in trouble."

Another bearish technician, mentioned in a brief Bloomberg write-up, is Axel Rudolph; he's with Commerzbank. He says that the "Gold Rebound Should ‘Soon Run Out of Puff’," and he's been proven to be right on that one. I note in passing that the recently-ended rally hasn't been universally believed.