Gold’s mysterious drop

It’s beginning to look as though that is what’s the case for gold, which has dropped nearly 3% so far on Tuesday.

Reuters

A 100 troy ounce bar of 999.9 fine gold.

That’s because the usual suspects have good alibis.

Consider what would normally be suspected to have caused a drop as big as gold’s today:

• News of an unexpectedly weaker economy, thereby reducing the potential for higher inflation and for gold’s appeal as an inflation hedge. No way. The economic news in fact shows a stronger economy, not a weaker one. Tuesday’s release of factory data for November, for example, showed a stronger-than-expected gain. Other things being equal, this news should have heightened the risk of inflation and helped gold, since the precious metal has been held back over the last year by worries about a deflation.

• A dramatically stronger dollar, causing gold’s dollar-denominated price to fall? Not really. The dollar /quotes/comstock/11j!i:dxy0 (DXY 79.41, +0.29, +0.36%) is only slightly stronger Tuesday on foreign-exchange markets — up 0.4% in midday New York trading. That can’t explain a nearly 3% drop in bullion.

• Sentiment among gold timers has been excessively exuberant, a condition that makes big drops likely. Again, no way. In fact, the gold timers are surprisingly subdued, given that bullion up until Tuesday was within shouting distance of a new all-time high. According to the Hulbert Financial Digest, the average recommended gold exposure among short-term gold timers currently is just 47% — meaning that, on average, they are keeping more than half their gold-oriented portfolios in cash.

No wonder that Adam Klopfenstein, senior market strategist at Lind Waldock, told MarketWatch’s Claudia Assis that “people are shooting first and asking questions later.” Read the full story.

— Mark Hulbert