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Guest Post: Why Has Gold Been Down?
Submitted by Jeff Clarke of Casey Research
Why Has Gold Been Down?
In spite of some short-term fixes, there remains no real resolution to the sovereign debt issues in many European countries. We're certainly not spending less money in the US, and now we're bailing out Europe via currency swaps with the European Central Bank. Shouldn't gold be rising?
Yes, but nothing happens in a vacuum. There are some simple explanations as to why gold remains in a funk.
- The MF Global bankruptcy, the seventh-largest in US history, forced a high degree of liquidation of commodities futures contracts, including gold. Many institutional investors had to sell whether they wanted to or not. This is similar to why big declines in the stock market can force funds and other large investors to sell some gold to raise cash for margin calls or meet redemption requests.
- The dollar has been rising. Money fleeing the Eurozone has to go somewhere, and some of it is heading into US bonds, which means first converting the foreign currency into dollars.
- It's tax-loss selling season, something that's also impacting gold stocks. Funds and individual investors are selling underwater positions for tax purposes. Funds also sell their big winners to lock in gains for the year and dress up quarterly reports.
These forces have all acted to depress the gold price.
Notice I didn't say that gold has suddenly become viewed as a poor safe haven. Nor that many of the world's major currencies are no longer being debased… nor that global sovereign debt issues are resolved… nor that interest rates are positive. No, the fundamental reasons for owning gold are still intact. So don't let the selling depress you.
Let's put gold's recent price action into perspective. It peaked on September 5 at $1,895 (London PM Fix) and has thus been in decline for about three months. Yet look at the bull market's biggest three-month correction in relationship to the ultimate trend.
Gold fell 20% from August 1 to October 31, 2008, the biggest rolling three-month decline in our current bull market. And yet, it eventually powered much higher, in spite of many investors and industry experts thinking it had peaked at the time. The final quarter of 2011 ended down 5.5% over the previous quarter.
The point? Don't confuse short-term volatility with long-term forces. The investor who looks only at today's headlines is prone to making ill-timed decisions.
I realize that prices could trade lower – but this is why we keep a high level of cash. By the time this bull market is over, our current pullback will probably look something like the small red box in the chart above, with far higher prices in the intervening months and years.
Which makes current prices a buying opportunity. I don't know if we're at the bottom of our recent decline or not – but I do know where gold and silver are ultimately headed Casey Research's Chief Economist and Editor of The Casey Report, Bud Conrad, is convinced gold will hit $2,000 in the first half of this year. If he is right, the opportunity to buy at today's levels will be fleeting.
In the meantime, stay the course with your precious metals investments, no matter how the short-term picture looks. Gold stocks remain undervalued, and these are turbulent times. They appear to be far from over. Gold remains the #1 asset protector.
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That's gold, Jam --- pure gold!
If that's gold, this is platinum (despite the current price reversal):
"Disingenuous bullshit answer, you clueless deflationary flat-earther. Go kiss Karl Denninger's ass."
No matter what your position, that wins the interwebz for the day.
Any PM beats Charmin Bro.
If the Yakuza came to my door and "asked" to buy my gold, I'm pretty sure I'd sell it to them. Just sayin.
That's why you don't answer the door or the question when Yakuza comes calling! When they do get a foot in the door, they make a bid that is low and hard to refuse.
Isn't that why you hedge your Gold with large purchases of Firearms and Live Ammunition? You must not be a sophisticated investor.
That's why the Yakuza business model doesn't work too well in the US at this time. Fortunately US investors can still own "the hedge that mows".
I'm somewhat surprised that the OP didn't mention the fact that the MF Global theft (let's call it what it is) has undoubtedly scared some (many?) investors out of paper gold keeping the price down. At least that was my prediction when Tyler published the rehypothecation story, but for some reason none of the guest posts discussing gold have made this point.
YOU FORGOT ONE MAJOR MAIN POINT...
ALL THE SHEEP ARE LONG GOLD, IT NEEDED A GOOD SHAKE AND HAMMER TO GET THESE SUCKERS OUT.
ALL THE SHEEP ARE LONG GOLD, IT NEEDED A GOOD SHAKE AND HAMMER TO GET THESE SUCKERS OUT.
*************
The sheep don't even know what gold is yet-
http://www.acting-man.com/blog/media/2010/10/Gold-percentage-of-financia...
http://www.acting-man.com/blog/media/2010/05/gold-and-other-bubbles.gif
http://www.acting-man.com/blog/media/2010/05/gold-vs.-past-bulls.jpg
I have a question I wish someone would answer. If Eric Sprott is looking for tons of silver, why doesn't he get CRIMEX future contracts and take delivery. Eventually he will break the CRIMEX and his silver fund will go ballistic. Am I missing something? Is he afraid he will end up sleeping with the fishes?
Much safer for Mr. Sprott in a number of important ways to buy metal direct from the miners if he can do so in sufficient quantity. Still accomplishes the goals you laid out.
Did anyone notice how most of the jewelery sold during the holidays were not even the paltry 14k? Most of the stuff sold in chain stores were stones set in silver, Check it out, that's what they are selling joe sixpack "We buy Gold" stores still got guys in monkey suits out front with the big poster. They're sucking in every bit they can get.
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When I was a young boy my Grandfather, a WWII vet told me, "Son there are three things that you should buy to build your wealth when your older:
1. Canned Food
2. Guns and Ammo
3. GOLD
Thank god I bought all three. But when paper money is cheaper to burn then firewood, don't come to my house. Thats when my hedge with investment #2 keeps me safe.
BITCHES
Fortunately US investors can still own "the hedge that mows".
Re Why Has Gold Been Down?
Hmmmm.... lets try applying Occam's Razor to this little conundrum.
Apologies in advance for veering from the Party Line, but could it be that - in spite of the myriad rationalizations for its less-than-stellar performance in recent months - gold is not quite the hedge that it's cracked up to be?
Or, could it be that short-term-obsessed, status-quo-inured individuals cannot see the forest for the trees, and refuse to focus on the big picture (and the ten-year chart of the price of gold) in favor of disingenuously diverting attention to short-term, transitory fluctuations in its price, which in any event only a fool would expect to move upward (to match the ongoing depreciation of the US dollar and every other world fiat currency) in a simple straight line?
I'm becoimg increasingly convinced that gold is being desperately, desperately suppressed/manipulated in price. I'm not saying anything new or radical here - it's just interesting how we learn & make our own (price) discoveries..
Anyway, rapidly rising gold prices - that is, the sort of rises that make it onto the mainstream media & encourage the average guy/gal think that something 'serious' might, in actual fact, be happening and/or that the value of their fiat is being eroded is the last thing the political & financial elites need to happen - it might just foment some sort of challenge to them.
The volatility since ~Aug/Sept this year just looks so well, 'regular' to me (single quotes are meant to signify the paradoxical) . I look at the charts & see take-downs, as if by clockwork, just when the NY market is an hour or two old each day (after any sustained rise for a few preceding days..).
The 'canary in the mine' or bell-weather nature of gold, I think, has been its undoing recently. Very rapidly rising gold prices are only one step away from a fuel or food shortage scare as a contrary indicator for the populace in general - even though they might not religiously follow its price, the cultural 'depth' gold has always resonates with & focuses people, eventually.
I have great respect for the Chinese & their cultural heritage, even more respect for their business acumen. When the Chinese (soon) open their own gold exchange (PAGE), import & produce more gold each year, allow thier citizens to open gold accounts etc. etc. - I take notice.
When central banks become nett buyers of gold, when gold is 'leased' & used as some sort of collateral by them, when one of the Rothschilds mentions gold bars as security, I take notice. If there was a flu scare or similar & the powers that be told us not to worry about getting a vaccine, but were simultaneously were increasing their stock of vaccine - what would you think?
It's difficult to disentangle & make coherent sense of all the information presented/available, but a rule that doesn't often lead you astray is to take note of what people (or rather the institutions/govt/financial overlords etc) actually do, rather than what they say.
better question is. why has gold been UP so much past few years?
SPECULATION.
and the bigger the speculator crowd, the deeper the corrections..
More laughs for a friday!!
"Money fleeing the Eurozone has to go somewhere, and some of it is heading into US bonds,..."
The US bond market has had a net exist of money from foreigners, this is complete bullshit.
think! TPTB are accumulting like u and i.
and what is the problem here?
none
end of discussion...
new game-new players
Been down so long, it looks like up to me.