Hawaii Six O - Gary Wagner
Are Gold Traders Buying the Rumor and Selling the Fact?
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According to yourdictionary.com, “buy the rumor, sell the fact – is an Investment & Finance Definition; A phrase often quoted by stock or futures traders that explains price declines that occur after an anticipated positive event has happened.”
The phrase, buy the rumor and sell the fact certainly seems to be appropriate in regards to recent moves in gold. The truth of the matter is that as events unfold there is an initial knee-jerk reaction, or buying the rumor. This is sometimes followed by selling the fact a few days later.
Take the last two trading days for example, gold had sizable gains yesterday this partially in response to statements made by speaker Nancy Pelosi, when she announced that there is a formal impeachment inquiry of Donald Trump.
Today gold futures and spot had a tremendous selloff. This selloff was a combination of both an extremely strong U.S. dollar, as well as traders selling the precious yellow metal. As of 4:08 PM EDT spot gold is currently down $27.90 on the day. According to the KGX (Kitco Gold Index), it was predominantly selling pressure which moved the market lower accounting for $17.30 of today’s price decline. The remaining decline of $10.60 was a direct result of dollar strength. The U.S. dollar index gained +0.74% (0.723 points) and is currently fixed at 96.65. The total decline in spot gold today was 1.82%.
Gold futures also sold off in a similar fashion today losing 1.90%, which amounts to a dollar decline per ounce of $29.20. The dollar index accounted for .75%, with the remaining 1.07% directly attributable to selling pressure.
Gold prices have been highly influenced by headlines. As reported in MarketWatch today Brian Lundin, editor of gold newsletter said, “Gold’s move offers more evidence that the gold price is headline-driven right now. The summary of Trump’s phone call is being interpreted as a nothingburger, so stocks are rallying and gold is selling off. The impeachment inquiry may “be more of a ho-hum issue for the markets than many are expecting, although undoubtedly an entertaining sideshow,”.
Whatever the reason and rationale for gold losing almost $30 today it certainly was a major selloff. If we see pricing continue to decline, I would look for a major support level between $1495 and $1500 per ounce. I would be highly surprised if gold continues lower and trades below that major support level.
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Wishing you as always, good trading,