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 ...
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.
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....
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.
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.
The long bull market in commodities is over
I need plunge protection. Should I call a plumber or the White Hut for a bailout?
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.
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.
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.
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.
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.
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.
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?
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
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.
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.
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.
With everyone fleeing to dollars, of course the price relative to dollars is going to go down.
The dollar has been relatively stable during gold’s big drops.
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