The only gold related news over the last few days was the closing of a Barrick mine in Chile, and the forced sale from the Cyprus central bank. In my opinion, neither of those explained the crash today. There are many theories floating around, and I don't know what the explanation is, but I know the 2001-present correlation is over. Knowing that, I sold a significant fraction of my holdings today to extract some profits.
Even though the most recent correlation and bull market appears to be dead, let's see what the longer term correlation looks like back to 1971. Using the most recent data points through today, the R-squared of the correlation to 1971 is 0.8463, pretty good.
What does the longer term linear regression predict?
Best Fit Price: $1515.51
One sigma up: $1718.88
One sigma down: $1312.15
Two sigma up: $1931.45
Two sigma down: $1099.58
The gold price is now below the long term linear regression going back to 1971. I've heard of this weird thing called reversion to the mean. Maybe there is something to it. Taking the long view, a closing price of $1477 looks perfectly reasonable. On the other hand, there is no particular reason to view the longer term correlation with any veracity. Time will tell. For now, nothing really looks like a great investment.
Lawrence Williams: Gold Price Manipulation – The Never Ending Game?
ReplyDeletehttp://www.caseyresearch.com/gsd/edition/lawrence-williams-gold-price-manipulation-the-never-ending-game
Carlos,
ReplyDeleteThere was a reported frenzy of physical buying in Asia and India, but whether that is enough to drive the paper price higher is anyone's guess. I held a pretty strong hand, but I am also practical, so they shook some physical out of my hands with more than $230 drop in two days. My position is even stronger now, but I remain practical.
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