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Gold: Sell first — and then ask questions. No apparent fundamental reason for gold’s drop
Marketwatch ^ | 03/16/2011 | Mark Hulbert

Posted on 03/16/2011 10:38:26 AM PDT by SeekAndFind

Sell first, ask questions later.

That appears to be what gold traders did earlier this week, when their actions caused bullion to suffer a huge decline — falling more than $30 alone on Tuesday.

Consider whether or not there are good fundamental reasons for gold to have fallen so much.

The default explanation, of course, is that bullion’s decline somehow traces back to the Japanese earthquake and the ensuing crisis.

But I’m not so sure why.

Consider what is perhaps the most-invoked rationale for investing in gold: It’s ability to hedge against worsening inflation. Isn’t that rationale even more compelling now than it was before the Japanese earthquake hit last week?

For example, the crisis undoubtedly will lead the Japanese government into spending a lot more money in coming years than previously planned — both in rebuilding the earthquake-ravaged regions, as well as in maintaining the value of the yen in foreign-exchange markets.

In addition, most analysts now seem to agree, the Japanese crisis makes it all but certain that the Federal Reserve in the U.S. will inaugurate yet another round of quantitative easing — QE3 — following the termination of QE2 this coming June 30.

Other things being equal, this should lead to more inflation, not less.

Another oft-cited rationale for investing in gold: It’s a hedge against geopolitical uncertainty. But aren’t the horrors we’re witnessing in Japan a textbook illustration of just that kind of uncertainty?

Indeed, Reuters has reported, premiums for gold bars in Tokyo jumped earlier this week to $1 per ounce, up from zero last week and a discount in the weeks prior to that. That's just what we would expect, given the desire to hedge against uncertainty — and suggests that it’s not reduced Japanese demand that is the culprit in gold’s recent plunge.

(Excerpt) Read more at marketwatch.com ...


TOPICS: Business/Economy; Culture/Society; News/Current Events
KEYWORDS: fundamentals; gold; price

1 posted on 03/16/2011 10:38:27 AM PDT by SeekAndFind
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To: SeekAndFind

There is no fundamental reason for gold to be so high, so it should be no surprise for a no reason fall.


2 posted on 03/16/2011 10:43:11 AM PDT by Patrick1 ("The problem with Internet quotations is that many are not genuine." - Abraham Lincoln)
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To: SeekAndFind

I don’t cringe like I used to..


3 posted on 03/16/2011 10:45:14 AM PDT by NormsRevenge (Semper Fi ... Godspeed .. Monthly Donor Onboard .. Obama: Epic Fail or Bust!!!)
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To: SeekAndFind
Maybe people are selling gold to raise cash so they can buy stocks of nuclear power companies.

In five or ten years, we're going to look back and see that Fukushima Daiichi was the turning point for nuclear power. When it becomes obvious that a multiple LOCA in one of the most populated nations on Earth was just another industrial accident, and as gasoline goes past $15/gallon, people are going to start to demand nuclear energy.

4 posted on 03/16/2011 10:46:53 AM PDT by Steely Tom (Obama goes on long after the thrill of Obama is gone)
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To: SeekAndFind

The market makes fools of most so a few can make a fortune...


5 posted on 03/16/2011 10:48:23 AM PDT by AngelesCrestHighway
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To: Patrick1

Yep. Agree completely.

Speculators can take prices up. And they can take them down.


6 posted on 03/16/2011 10:48:42 AM PDT by NVDave
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To: Steely Tom

Uranium stocks went through the floor....


7 posted on 03/16/2011 10:49:36 AM PDT by AngelesCrestHighway
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To: Steely Tom

“In five or ten years, we’re going to look back and see that Fukushima Daiichi was the turning point for nuclear power. When it becomes obvious that a multiple LOCA in one of the most populated nations on Earth was just another industrial accident, and as gasoline goes past $15/gallon, people are going to start to demand nuclear energy”

And by then, it will take *15* years (instead of only 10) to build them with the hundreds of new regs and tightened specs that the libs will demand. And there will still be 42% of the population that will resist nukes under any conditions.


8 posted on 03/16/2011 10:50:59 AM PDT by Attention Surplus Disorder (Which has more wrinkles? Helen Thomas' face or Lawrence O'Donnells' panties?)
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To: Patrick1
"There is no fundamental reason for gold to be so high ..."

Except, perhaps, the Obama administration printing money in order to fund the massive debt, even before one of the leading holders of American debt had a disaster that will cause them to stop buying U.S. debt and start re-patriating it's money.

9 posted on 03/16/2011 10:53:48 AM PDT by In Maryland ("Impromptu Obamanomics is getting scarier by the day ..." - Caroline Baum)
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To: AngelesCrestHighway

“The market makes fools of most so a few can make a fortune...”

How kind of the market to do that for them.


10 posted on 03/16/2011 10:54:22 AM PDT by Tublecane
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To: Tublecane

It is called Deflation and it has been what the Fed fears most...because they can’t control it...


11 posted on 03/16/2011 11:01:57 AM PDT by Eagletest (We know who the RINOs are anyway, right?)
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To: SeekAndFind

The dollar still has safe haven status, and strengthened when the scale of the disaster became clear.

So everything priced in dollars went down (Uranium and Japanese stocks of course being a special case).

This not so hard.


12 posted on 03/16/2011 11:19:12 AM PDT by agere_contra (Whenever a Liberal admits to something: he is covering up something far worse)
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To: SeekAndFind

if the silver:gold ratio gets over 50:1 again, i’ll be swapping gold for silver.

then when it comes back under 30:1, i’ll be trading my silver for gold.

as of right now, gold ($1391.90), silver ($33.94) and the silver:gold ratio is 41:1


13 posted on 03/16/2011 11:24:57 AM PDT by sten (fighting tyranny never goes out of style)
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To: AngelesCrestHighway

Sounds like a buying opportunity, buy into weakness, sell into strength. (buy low, sell high)


14 posted on 03/16/2011 11:25:23 AM PDT by coolgenner
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To: Patrick1

gold isn’t high. Money is just cheap.


15 posted on 03/16/2011 11:28:10 AM PDT by RobRoy (The US Today: Revelation 18:4)
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To: SeekAndFind

I heard an “expert” on TV (Fox Business) mention that the Japanese might be selling gold to free up cash to pay for the tsunami/nuke plant disaster . . .


16 posted on 03/16/2011 11:37:32 AM PDT by filbert (More filbert at http://www.medary.com--The Revolution Will Be Exit-Polled. I hope.)
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To: In Maryland

Gold was overpriced before Obama ever became President.


17 posted on 03/16/2011 11:43:05 AM PDT by Patrick1 ("The problem with Internet quotations is that many are not genuine." - Abraham Lincoln)
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To: SeekAndFind

Insurance companies selling to get liquidity for pay outs.


18 posted on 03/16/2011 11:43:28 AM PDT by SampleMan (If all of the people currently oppressed shared a common geography, bullets would already be flying.)
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To: SeekAndFind

Everything else fell, too. Why should gold, a commodity, be any different?


19 posted on 03/16/2011 11:46:30 AM PDT by ozzymandus
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To: SeekAndFind

Does anyone know if the Bank of Japan is selling gold to pay for their disaster?


20 posted on 03/16/2011 12:01:29 PM PDT by grumpygresh (Democrats delenda est)
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To: Patrick1

WOW!You seem to have this gold thing really figured out. What is the correct price that gold should be???


21 posted on 03/16/2011 12:03:57 PM PDT by Gadsden1st
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To: Steely Tom

You would definitely need Steely nerves to jump on that play.


22 posted on 03/16/2011 12:06:07 PM PDT by DManA
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To: Gadsden1st

The correct price is that of the last transaction.

Oh obsolete. On to the next correct price.


23 posted on 03/16/2011 12:07:30 PM PDT by DManA
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To: coolgenner

buy into weakness,

I have one word - GM. Enough said.


24 posted on 03/16/2011 12:08:59 PM PDT by DManA
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To: AngelesCrestHighway

A fool follows aphorisms.


25 posted on 03/16/2011 12:10:46 PM PDT by DManA
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To: Gadsden1st

Considering it is not scarce and is reusable the true value is probably around $300 an ounce.


26 posted on 03/16/2011 12:12:00 PM PDT by Patrick1 ("The problem with Internet quotations is that many are not genuine." - Abraham Lincoln)
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To: DManA

That is what I thought, but it seems Patrick1 has a different take on what the real, true price of gold should be. That is the number I was looking for.


27 posted on 03/16/2011 12:12:00 PM PDT by Gadsden1st
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To: Patrick1

I will be happy to pay you $100 over the “true value” of $300.00 for as many ounces you care to sell me!!


28 posted on 03/16/2011 12:15:00 PM PDT by Gadsden1st
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To: Gadsden1st

Just wait a few more months.


29 posted on 03/16/2011 12:16:48 PM PDT by Patrick1 ("The problem with Internet quotations is that many are not genuine." - Abraham Lincoln)
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To: Gadsden1st

Ah, you want to know what WILL the correct price be.

Send me your SS and bank account numbers and I will tell you.


30 posted on 03/16/2011 12:19:10 PM PDT by DManA
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To: Patrick1

Tell you what, as Free Republic is my witness, I will pay you TWICE your fair value of $300.00 per ounce for every ounce you wish in a few (3) more months. DEAL??


31 posted on 03/16/2011 12:20:56 PM PDT by Gadsden1st
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To: SampleMan
Insurance companies selling to get liquidity for pay outs.

Excellent point.
32 posted on 03/16/2011 12:28:05 PM PDT by PA Engineer (Liberate America from the occupation media. There are Wars and Rumors of War.)
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To: DManA

“Ah, you want to know what WILL the correct price be”

I know what the correct price will be. It will be the price that the market pays. The price a willing buyer is paying a willing seller.


33 posted on 03/16/2011 12:31:17 PM PDT by Gadsden1st
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To: Patrick1
"Gold was overpriced before Obama ever became President.

You're entitled to your opinion, but gold was trading for about $750 oz at the beginning of November, 2008 - so it has nearly doubled in price since the election of BO.

34 posted on 03/16/2011 12:47:00 PM PDT by In Maryland ("Impromptu Obamanomics is getting scarier by the day ..." - Caroline Baum)
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To: SeekAndFind

Institutional investors are having a collective forced fire sale in order to generate the cash for anticipated insurance payouts in Japan.


35 posted on 03/16/2011 12:50:41 PM PDT by RegulatorCountry
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To: SeekAndFind

Right now gold is up over $4.00.


36 posted on 03/16/2011 12:53:01 PM PDT by Conservativegreatgrandma
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To: SeekAndFind

Any fool that doesn’t understand accumulation - markup/markdown - distribution deserves to get fleeced in the market.


37 posted on 03/16/2011 1:24:32 PM PDT by Free Vulcan (Vote Republican! You can vote Democrat when you're dead.)
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To: Patrick1
Considering it is not scarce and is reusable the true value is probably around $300 an ounce.

is that in todays dollars? or yesterdays?
38 posted on 03/16/2011 2:43:08 PM PDT by wafflehouse (RE-ELECT NO ONE !)
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