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Here Are The Real Reasons Why Gold And Silver Plunged
TBI ^ | 9-24-2011 | Mike "Mish" Shedlock

Posted on 09/24/2011 8:24:30 AM PDT by blam

Here Are The Real Reasons Why Gold And Silver Plunged

Mike "Mish" Shedlock, Global Economic Trend Analysis
Sep. 24, 2011, 7:28 AM

Many people have asked me to comment on the plunge in gold and silver. First let's take a look at the wrong answer: Case Closed: CME Hikes Gold, Silver, Copper Margins

And there you have it: CME just hiked gold margins by 21%, silver by 16% and copper by 18%. Mystery solved. Sorry Tyler, wrong answer.

Four Reasons for Metals Plunge

* Fed did far less than expected
* Mutual fund redemptions
* Margin calls at hedge funds
* China growth story fading

1. Fed Did Far Less than Expected

The Fed did not do what everyone thought, which is to say something far more than "Operation Twist".

As noted in advance, I explained why the Fed wouldn't do more than Operation Twist, in Six Things the Fed May Announce Tomorrow (But Likely Won't); Would Any of Them Matter? Gaming the Reaction.

In short, the Fed did not print, or even threaten to print. Moreover the Fed committed to a strategy not through the end of this year, but all the way through June of 2012. Perhaps the Fed does more in the interim, perhaps not.

For those expecting drama, the Fed's non-action was decidedly bearish for commodities in general, even gold.

2. Mutual Fund Redemptions

Mutual fund cash levels are at or near record lows. In general, mutual funds were not prepared for the market selloff and sell orders came in. Rather than sell garbage like Bank of America at $6, mutual funds unloaded stuff like gold, taking profits.

3. Margin Calls at Hedge Funds

Hedge funds unloaded gold and silver for the same reasons as mutual funds,

(snip)

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


TOPICS: News/Current Events
KEYWORDS: bho44; bhoeconomy; commodities; economy; globaleconomy; gold; goldselloff; goldsilver; metals; obamarecession; silver; silvergold


1 posted on 09/24/2011 8:24:40 AM PDT by blam
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To: blam

If silver goes down to low 20s, I would buy again.

If gold goes $1200, I would buy again.

This sounds like an excellent buy opportunity.


2 posted on 09/24/2011 8:30:05 AM PDT by 3Fingas ( Sons and Daughters of Freedom, Committee of Correspondence)
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To: blam
Imminent Silver Price Crash to Devastate Longs (Sept 18)
3 posted on 09/24/2011 8:30:59 AM PDT by Vince Ferrer
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To: blam

These guys are missing another reason, the metals are priced in dollars.

With everyone fleeing to dollars, of course the price relative to dollars is going to go down.

This is the biggest factor and it isn’t going to last.

So buy buy buy....


4 posted on 09/24/2011 8:33:42 AM PDT by dila813
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To: blam

REBOUND GONE: Europe Dives Into The Red, US Futures Slip

Friday, September 23, 2011 8:36:47 AM · 17 of 25
EBH to RayChuang88

I was wondering the same thing yesterday...gold was dropping too?

The only thing I could figure out was that ‘wealth’ is truly gone and those that bought gold are needing to sell it at peak to cover margins. Which would be bursting the gold bubble. The winners will be those who can actually hold on to their gold through the contraction.


5 posted on 09/24/2011 8:34:50 AM PDT by EBH (God Humbles Nations, Leaders, and Peoples before He uses them for His Purpose)
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To: 3Fingas

I too am looking to buy on the dips. I was thinking gold 1500 — To me, the two big variables that are hard to predict are this:

How badly will China fade actually? Even our so called “China experts” cannot predict what will happen in that huge and complicated country.

How far will Bernanke go to destroy the dollar in his hopeless attempt to make himself go down in history as the man who saved us from the next great depression? He’s gone further than I would have ever dreamed already.

If I could answer those, I’d feel a lot more confident.


6 posted on 09/24/2011 8:36:13 AM PDT by C. Edmund Wright
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To: blam

The long bull market in commodities is over


7 posted on 09/24/2011 8:37:51 AM PDT by montag813
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To: blam

I need plunge protection. Should I call a plumber or the White Hut for a bailout?


8 posted on 09/24/2011 8:42:43 AM PDT by Jack Hydrazine (It's the end of the world as we know it and I feel fine!)
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To: EBH
The winners will be those who can actually hold on to their gold through the contraction.

If I have learned anything as a silver investor, it is to never ever ride out a correction. With the exception of physical metal, be as timid as possible, and get out the moment things turn sour.

9 posted on 09/24/2011 8:48:56 AM PDT by Vince Ferrer
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To: blam

How about reason #5 for the drop in gold?

Namely, gold was overbought and had not had a 10% correction in over 18 months.

Any excuse is all it takes for gold to undergo a correction. Now the unanswered question is how big will the correction be.

My guess is the correction will take gold to the $1500 level and then it is up, up, and away again.


10 posted on 09/24/2011 8:52:03 AM PDT by Presbyterian Reporter
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To: C. Edmund Wright

Sadly, the dollar is already Monopoly money. We can never pay-off the debts we have in dollars the retain anything like their current value. So, the only way to do it is inflate the currency. We are the like the Roman Empire right before the battle of Adrianople. There is some sense of decline but we haven’t been struck a mortal blow yet (at least one that we recognize as such). On our current path, many will choose to deceive themselves till the very end. Hopefully, we can change that path.

As for China, they are in a better position to weather the storm than we are. Half of their people can continue to live in utter squalor because their Army would make short work of any serious internal challenge to their central government. All of our “smart guys” in the State Department have been saying for years that China would become more democratic as it prospers. I see no evidence to support their wishful thinking.


11 posted on 09/24/2011 8:54:20 AM PDT by 3Fingas ( Sons and Daughters of Freedom, Committee of Correspondence)
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To: dila813
So buy buy buy....

There are reports of shortages of physical and the continuing rumor that exchanges and ETF's don't have enough physical either.

I wouldn't be a bit surprised to see premiums for physical increase as shortages become even worse.

12 posted on 09/24/2011 8:54:38 AM PDT by Errant
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To: montag813

No, this is just what the Fed needs in order to start the printing press again. Get commodities way down, so inflation looks like it is no longer a problem and that to contain the price of goods from going to high. If they don’t the entire banking system will collapse as some point. It is print or die for these fools. That said I would expect more pressure to the downside before they can start this policy.


13 posted on 09/24/2011 8:56:56 AM PDT by DarkWaters ("Deception is a state of mind --- and the mind of the state" --- James Jesus Angleton)
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To: 3Fingas
Half of their people can continue to live in utter squalor because their Army would make short work of any serious internal challenge to their central government.

A fact rarely noticed by the media when reporting on the "Chinese Economic Miracle". The U.S. still enjoys a 7 to 1 advantage over China in per capita GDP. We live way better than the average Chinese.

14 posted on 09/24/2011 9:01:06 AM PDT by InterceptPoint
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To: 3Fingas

You may be right about both - which seems more like you’d be a 1600 dollar gold guy and not a 1200 dollar buyer....or do you feel like there will be some more panic selling from folks who might have bought at 900 or 1200 who want to lock in their profits?


15 posted on 09/24/2011 9:01:32 AM PDT by C. Edmund Wright
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To: dila813

Yup.

M2 is exploding as europeans dump the euro and convert to USD.

Problem is, they`ve jumped from frying pan to the fire and are only delaying the inevitable


16 posted on 09/24/2011 9:12:17 AM PDT by Para-Ord.45
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To: blam

Thanks for posting this. I started a thread on silver yesterday to see if any freepers knew what was going on or where to go to find a sensible explanation. I wasn’t very impressed with most of the replies. No one knew any more than I did.


17 posted on 09/24/2011 9:15:42 AM PDT by mamelukesabre
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To: 3Fingas

The Rule of 72 is the number of years it takes to double your money.

The 30 year Treasury Bond is at 2.8%.

If you buy a 30 year T Bond it will take 25 years to double your money.

Given that dismal return on investment people will be flocking to buy gold once this nasty correction is over.

Plus at some point people are going to start taking profits on their T Bonds at these extremely high prices. When bonds go down in price, gold will go up in price. The money has to go somewhere.

It is all a matter of probabilities.

What is the probability gold will double in price in the next year, 5 years, 10 years, or 25 years?

Or people will be asking themselves this question. Why own paper dollars that earn no interest when I could just as well own gold that earns no interest. But with gold it has the probability of going higher while paper dollars do not.

People also need to be mindful that gold was $1500 only two months ago and at the time it was considered a very high price.

Corrections are a pain in the neck, but are necessary to the smooth functioning of a market.


18 posted on 09/24/2011 9:24:53 AM PDT by Presbyterian Reporter
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To: mamelukesabre

Concur - these are good explanations. Still the gold and silver markets are good places to be so long as the Marxist is in the Whtiehouse.

I think gold could go to $10,000, and just stay there, when the Euro melts down and the US is finally insolvent. The former is in progress and the later is scheduled for mid-next year, US debt ceiling will not last until the election, not at this rate of spending.

Socialism has run out of other people’s money.


19 posted on 09/24/2011 9:30:03 AM PDT by FlyingEagle
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To: dila813

With everyone fleeing to dollars, of course the price relative to dollars is going to go down.


The weakness of your point is that when you look at the charts for the week, you see that dollar rises and gold drops are not happening on the same days or times.

The dollar has been relatively stable during gold’s big drops.


20 posted on 09/24/2011 9:30:11 AM PDT by Atlas Sneezed (Author of BullionBible.com - Makes You a Precious Metal Expert, Guaranteed.)
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To: AdmSmith; AnonymousConservative; Berosus; bigheadfred; Bockscar; ColdOne; Convert from ECUSA; ...

Thanks blam.
21 posted on 09/24/2011 9:47:32 AM PDT by SunkenCiv (It's never a bad time to FReep this link -- https://secure.freerepublic.com/donate/)
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To: Diana in Wisconsin
Welcome, My Friends to the Collapse of 2011
22 posted on 09/24/2011 9:49:53 AM PDT by blam
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To: mamelukesabre
Technical analysis you might find interesting - silver @ about 6.5 mins into the video.

http://www.thetechnicaltraders.com/ETF-trading-videos/index.html

As world economic stability deteriorates even further, physical markets could disengage from the paper markets.

23 posted on 09/24/2011 9:55:18 AM PDT by Errant
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To: Beelzebubba

So you think that there is an instant repricing of gold relative to Dollars?

Gold is priced in Dollars, so why would there be? Is there a forex in gold?

That is the weakness of your point.


24 posted on 09/24/2011 10:08:40 AM PDT by dila813
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To: dila813

So you think that there is an instant repricing of gold relative to Dollars?


Yes.

Anyone in the market would be a fool to fail to pay attention to the dollar value, lest they be abusively arbitraged by anyone with a brain.


25 posted on 09/24/2011 10:16:39 AM PDT by Atlas Sneezed (Author of BullionBible.com - Makes You a Precious Metal Expert, Guaranteed.)
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To: Para-Ord.45

Yes, they will have to flee the dollar too, gold is the logical choice.


26 posted on 09/24/2011 10:17:07 AM PDT by dila813
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To: Beelzebubba

Gold isn’t a currency, it is a commodity priced and valued in dollars.


27 posted on 09/24/2011 10:19:29 AM PDT by dila813
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To: Errant
Nigel Farage: Financial “Cataclysm” To Come, Gold to Unimaginable Levels
28 posted on 09/24/2011 10:39:22 AM PDT by blam
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To: blam

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/9/23_Nigel_Farage_-_Financial_Cataclysm_%26_Gold_Unimaginably_Higher.html

this is the original source link for your link


29 posted on 09/24/2011 12:45:08 PM PDT by mamelukesabre
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To: blam
Thanks, he's the guy who told the EU, "just who the hell do you think you are" - for those that didn't know.
30 posted on 09/24/2011 1:14:29 PM PDT by Errant
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To: Errant
Whoa!

That was good.

What Are Copper And Oil Signaling?

31 posted on 09/24/2011 1:22:25 PM PDT by blam
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To: blam
What Are Copper And Oil Signaling?

I'm afraid they may be signaling the same thing that gold and silver are signaling - the last or next to last plunge before we dive into a massive depression followed by massive fiat devaluation. That's something the folks in the 30's didn't have to deal with, among other things in their favor - like living in an agrarian society.

Nowadays we get our food from the store and the ability for half the population to buy it, from the government.

32 posted on 09/24/2011 1:53:33 PM PDT by Errant
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To: dila813

“These guys are missing another reason, the metals are priced in dollars. With everyone fleeing to dollars, of course the price relative to dollars is going to go down. This is the biggest factor and it isn’t going to last.”

Are you sure? Here is the chart of the change in gold price for Friday and the breakdown of change because of the dollar.

http://www.kitco.com/kitco-gold-index.html

As you can see, the change was mostly due to normal trading.


33 posted on 09/24/2011 2:18:49 PM PDT by cowtowney
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To: cowtowney

That is backwards, if the dollar gets stronger, you can buy more gold for less dollars ... in other words the price goes down.

Your link has the price going up not down even though dollars shot through the roof.


34 posted on 09/24/2011 2:38:16 PM PDT by dila813
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To: C. Edmund Wright

Yeah, I think there is going to be some major central bank manipulation of gold prices as currency becomes more worthless. So, in the short term (6 months to year), I am bearish on gold and silver. Unless, gold drops to $1200, I am buying ammo, food, and other barterable items. If we go the route of Argentina, my investments are good. If we go the route of the Wiemar Republic, my investments are outstanding. If a magical, unifying Reagan-like figure comes along and fixes everything, I didn’t buy gold and at an inflated price and I can still shoot the ammo and eat the food. Win-win.


35 posted on 09/24/2011 2:54:46 PM PDT by 3Fingas ( Sons and Daughters of Freedom, Committee of Correspondence)
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To: cowtowney

Good point about everyone still fleeing to dollars. Even though, the dollar is sickly, it’s still doing better than the Euro, it’s main competitor for the moment. So, much of the weakness of our currency is hidden by this short-lived phenomenon.


36 posted on 09/24/2011 3:01:38 PM PDT by 3Fingas ( Sons and Daughters of Freedom, Committee of Correspondence)
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To: 3Fingas

Very interesting take, and I follow your logic. I especially like your Argentina - Weimer - Reagan scenario hedge strategy. I might follow it.


37 posted on 09/24/2011 8:52:35 PM PDT by C. Edmund Wright
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To: 3Fingas

problem is...metals are sinking like a freeking boat anchor relative to the euro...not just to the dollar. so that theory is shot to hell...sorry charlie.


38 posted on 09/25/2011 1:38:56 AM PDT by mamelukesabre
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To: mamelukesabre

Profit-taking for the time-being. Unless the fiscal/debt situation improves in both the US and Europe. You can bet that precious metals will go back up again. I did say I thought gold was overvalued right now.


39 posted on 09/25/2011 5:02:46 AM PDT by 3Fingas ( Sons and Daughters of Freedom, Committee of Correspondence)
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To: SunkenCiv; blam; InterceptPoint
Here Are The Real Reasons Why Gold And Silver Plunged

1: I went fishing today and it took me a while to reel some of them in.

2.I don't care about you. Only ME ME ME.(Just eat the worm goddamit)

40 posted on 09/25/2011 7:30:17 PM PDT by bigheadfred (But alas)
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To: bigheadfred
Just remember Eco 101, there are only two forms of money. Gold and Silver, the rest is just paper.When the smoke clears away, you will be considered a wizard to having bought Gold and Silver, just hunker down and watch the show.
41 posted on 09/25/2011 10:44:13 PM PDT by BooBoo1000 ("IF YOU DON'T HOLD IT, YOU DON'T OWN IT" ( Wise old Gold Bug))
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To: mamelukesabre

Apparently the CFTC (in their next meeting in October) will be discussing the imposition of a strict, 1500-contract position limit in silver. It wouldn’t happen in October, but the timeline would be discussed: you know how committees work.

Any such imposition would (I guess) force JPM to divest themselves of most of their gigantinormous short position.

While I still give credence to the rumour about JPMs lopsided derivative position that would wipe them out if Silver is over 36/oz for 60 days - maybe the CFTC is starting to do its job of regulating the silver market. As JPM is being sued for manipulation it would smack of misprison for the CFTC not to do anything.

So JPM is running scared, and is burning the paper price to buy physical Silver cheaply.

In summary: my preferred characterisation of the Silver market is that of a vastly underpriced commodity held down by paper manipulation. This manipulation has multiple possible end-scenarios: the most obvious one is when the market runs out of physical silver because it’s so underpriced. So we should *buy silver until our ears bleed*.

Hope this proves helpful.


42 posted on 09/26/2011 1:45:36 AM PDT by agere_contra ("Debt is the foundation of destruction" : Sarah Palin.)
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To: dila813

Well, I confess that I bought about $500 worth of silver eagles at $40 each a couple weeks ago, and two morgans at the VERY peak for about $45.

But the lions share of my silver was purchased below $20. And being in this for the long haul, I may need to go big again.


43 posted on 09/26/2011 6:49:27 AM PDT by cuban leaf (Were doomed! Details at eleven.)
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To: DarkWaters

—No, this is just what the Fed needs in order to start the printing press again. Get commodities way down, so inflation looks like it is no longer a problem and that to contain the price of goods from going to high.—

I think there is some truth to that. It is said that the time to get out of any market is when everybody is into it. One guy said, many decades ago, that when his shoe shine guy was giving stock market advice, he knew it was time to sell.

And the converse is true. When “everybody knows” that only a fool would actually buy a house or stock or whatever, it’s time to go in big. It’s pretty much hit bottom.


44 posted on 09/26/2011 6:54:48 AM PDT by cuban leaf (Were doomed! Details at eleven.)
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To: cuban leaf

I am buying at spot and buy when I see it pull back on the ETF.

I have some physical metals but most of it is in ETFs.


45 posted on 09/26/2011 7:48:47 AM PDT by dila813
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