Skip to comments.Why Is the Price of Gold Falling?
Posted on 08/19/2012 5:41:20 PM PDT by SeekAndFind
China's problems are gold's problems
Investors who love gold tend to think of it as a sort of bomb shelter. It's supposed to be a secure place to park your money when the rest of the financial world is blowing up.
So some may find it surprising that in a year when Europe's troubles have thrown the global economy into fits, gold has been a loser's bet. The price per ounce of everyone's favorite rock is down about 7percent for the year and is off 15 percent from its September peak. According to a report released yesterday by the World Gold Council, total demand for gold fell 7 percent in the second quarter of 2012 compared to the year before.
Let this be a reminder that, no matter how long it's been around, gold just isn't that special. It's a commodity that responds to the laws of supply and demand. Unlike commodities such as wheat or oil, which you can at least eat or burn for fuel, gold pretty much lacks any inherent value beyond what the market assigns to it. And in the past decade, much of the new demand that set gold off on a wild tear from around $300-an-ounce at the turn of the century to almost $1,900-an-ounce last year has come from two places: India and China. Combined, they account for 45 percent of the world's demand for gold jewelry and bars.
(Excerpt) Read more at theatlantic.com ...
Funny, I don’t remember it being in the $1900s....just in 1700s
Calm before the storm?
I've been watching economic experts for years now going back and forth on two topics: "Is Hyperinflation just around the corner? It sure looks like it!!" and "Are we in a Deflationary death spiral? It sure looks like it!!"
If the price of gold is dropping for no obvious reason, then I'd say that the odds of us being in a Deflationary death spiral are pretty good.
The most obvious reason is that higher prices make it more economically feasible to mine the ore, process it, and sell it on the open market. For the most part, it really is that simple.
Is gold going down or the dollar going up..? There’s a lot of people betting on the Kenyon getting the boot.
Because Soros said it 'is time' and so gave the signal?
It’s becoming a form of entertainment—like a shrieking circus—even for those of us who are not personally involved. ...couple days ago.
Soros Unloads All Investments in Major Financial Stocks; Invests $130 Million In Gold
Baltic Dry Index:
My fire extinguisher isn't making me any money but I feel better knowing it's around.
(FWIW, silver's prolly a better choice for a stash.)
Send treats to the troops...
Great because you did it.
(An entirely free service)
Surprise, surprise. The Atlantic is a leftist publication. So bashing gold and promoting paper money would be in their best interests.
I do not understand Atlantic’s statement that gold is down 7% year to date when it fact it is even.
We have had 10 years of positive price increases in gold. So it would not be unordinary for 2012 to be a price decrease in gold.
But I would not make bets yet. We still have more than 4 months of 2012 to go. The Central Banks are still printing gobs of money so it is likely to expect gold to rise.
Most likely Atlantic is trying to discourage the gold market so Soros can buy more at cheap prices.
Good bet here.Zero is out gold goes down.Zero stays around $2,500 dollar gold.
That’s my play. But I’ve turned 10k into 5k lots of times.
Gold more than doubled on price since Obama became President.It did rise to over $1900/oz before retreating to a current price of ~$1600. The main reason for the decline was the sale of gold in huge amounts by European Central banks and the IMF to provide funds for the bailouts and to provide liquidity for European banks. However the factors that caused gold to rise have not changed. Deficit spending, non sustainable huge debts, dollar printing and contraction of productive economies continue.The bailouts squander even more capital and further weaken Western economies. The Europeans are selling but Asian central bankers are buying huge amounts of gold. This underscores their lack of confidence in the value of the dollar. Would you want to be the Chinese central banker who has to explain to party hacks why China’s treasure of two trillion American dollars has declined in value?
Better to own gold in a deflationary time than anything with maybe exception to cash. If we truly have extreme deflation, absolutely everything in our economy is absolutely 100 % screwed.
We have a winner.
Either way, some gold or silver is a good idea. The depression is coming. But with Romney, at least the odds of getting hauled off to a FEMA "reeducation camp" are less.
Nothing could be better than to read a bearish article on gold in the Atlantic!
Measured from the arbitrary point from where this article starts its chart, yeah, gold is off from $1900. It’s off massively less than silver, which poked at $50, its old high.
Silver at 28 is 44% off $50. Gold at $1600 is 16% off its peak high.
I am a fan, not a worshipper, of both.
A little closer look at the chart of gold suggests that (and this, like any other interpretation, is just an interpretation) gold is probably building a base around here. The silver chart does not look anywhere near as healthy. But both of them have shown notable support near these levels. This is a time of year when these metals typically show weakness and tend to climb a little later in the year. I don’t necessarily say that these are going to rocket higher. Maybe they already have. Gold has put in a magnificent performance over the past decade or so. Silver, too. It’s entirely possible these metals were way out in front of perceived inflation and they are where they are for that reason and may go “not much higher”. I am somewhat agnostic on them in terms of loading up on them. I even sold some gold, at $1760....and I’m not unhappy I did. I see silver being sold anywhere above $28. But I see it being bought with gusto at any kind of $26.xx price.
These are very long term investments or “hedges” (definitely an incorrect term but many view as such) It is nearly impossible for a small holder to buy the metal and resell the metal, given the buy/sell spreads. At the same time, they are commodities, and commods can take breathtaking plunges. The essential question is: over and above “normal” market volatility, do either of these metals bear the possibility of taking giant plunges and holding down there for 10 or 20 years? I don’t know. I tend to doubt it. But....it only has to happen once!
Myself, I am happy owning modest amounts of PMs, regardless of what the price does.
As for buying metal at these interim highish prices; once you’ve made the decision to change some of your USDs into metals, dollar cost averaging, buying a little, at various prices, at various times, is a smarter decision, IMO, than thinking you can catch a price dip and really nail it.
Gimme a ping if you ever see anybody admit they lost money on gold. It seems that everybody bought at a nickel a pound and sold when it peaked.
There is almost no way we can escape without moderate deflation, followed by at least moderate inflation. And with the idiots in Congress they are unable to spend forty cents for every nickel they get in revenues.
Yes, the market may rally on Nov 7. But things are not even beginning to suck.
If folks want an inflation hedge and believe in the long term the economy and western civilization will survive the WOT then acquiring a bit of gold or other precious metals is not a bad idea.
If you are like me and you have little faith we will win the WOT then gold and the precious metals is a foolish investment.
If this country sustains an attack with WMD in multiple locations its over for the USA and precious metals will be denominated in the price of food at the third world subsistence level not what anybody paid for it. In my opinion land, in carefully chosen locations, food, and investments in self reliance are far better investments for the future as I see it.
All bubbles come to an end.
I concur. Since gold goes up when oil goes up, me thinks that everyone knows that when Romney wins in Nov the oil prices are going to plummet. The gig is up in the foreign oil market.
That is a consolidation chart, after an insane run to the peaks. Nothing is “falling”. This idiot acts like $2,000 is its natural level or something.
Gold bug ping.
Gold is money, everything else is credit J.P. Morgan
Several things to consider about gold prices:
It was too high, that’s why!
Darn it! I wanted to buy it in the $1900s, now it’s too cheap.
It’s falling because George Soros wants it to... so he can buy it at the bottom right before everyone’s dollars turn to crap.
The only man i’m aware of that can manipulate the market on a daily basis and get away with it.
Now there is a useful target for Seal Team 6.
“”The prices shown are for “paper” gold traded on the Comex (among other places). Physical gold trades at a premium and is difficult to find in reasonable quantities.””
Apparently you are not aware that you can buy a gold futures contract on Comex and take delivery of physical gold.
You can buy an August 2012 futures contract on Comex today for about $1619 and take delivery of the 100 ounce bar at the end of the month. All you need is $161,900 to do the deal. It is the cheapest way to buy gold.
RE: Theres a lot of people betting on the Kenyon getting the boot.
So, you seem to be saying that if Obama gets re-elected, Gold will skyrocket and if Romney gets elected, Gold will fall...
Soros bought in pretty big a couple of days ago. FWIW
of course the price of a commodity will drop...
if you flood the market
it’d be nice to get a count of what we have left
Its nice to see such a common sense post on gold here on FR. Way too many goldbugs with too much shine in their eyes to see reality.
Are you kidding? I’ve read dozens of posts of people whose fathers bought gold at $850/ounce during the 3 minutes it was sold at that rate.
If the dollar becomes like the Icelandic Krona was in 2008, then if you need to import something, like certain medicines or tools, you better have something a foreigner would want.
Goldman warns of a financial Cliff disaster
Soros, Rothschilds and Goldman have close ties to every Major Government in the free world and more
Of course, you can buy some physical ... a little bit at a time. But, as noted in my original reply, not in reasonable quantities.
Apparently you are not aware that approximately 98-99 percent of all Comex futures paper settle. There simply is not enough physical to meet delivery requirements.
There's nothing like getting fiat (provided your account balance hasn't been stolen by a broker-dealer shades of MF Global and PFG), or even worse GLD shares, when the dollar crashes.
When one or more get into trouble or have trouble meeting an obligation or with some deadline, those effected take advantage of the high metal prices and start selling gold to cover losses and buy more time.
If Romney wins, markets should respond favorably and then gold will lose some luster. Otherwise, if and until then, the price heads up as the dollar is devalued.
I had to pay a considerable premia when I bought in to the market. How much should I charger to sell it back over spot?
I’m planning to purchase some gold next month so that when the value of the dollar tanks I can cash it in and pay off my mortgage.
Note that nice descending wedge there to boot...
“All bubbles come to an end.”
Yes, they do, but gold isn’t in a bubble. The current global bubbles are:
- debt; bank, government and private throughout most western countries
- especially US Treasuries
- US dollars
Those invested in bonds had better watch out... The 40 bull market in bonds will blow up within the next few years when bond holders figure out the true risks of holding them when interest rates ultimately climb.
IMHO, the goldprice.org dollar value price only demonstrates the decreasing value of and relative confidence in the fiat US currency. Price will head north again.
The US Money Markets And The Price Of Gold - Tyler Durden on 08/18/2012 22:19 -0400
It seems an investor better gauges the precious metals market emotional drive using the Gold/Silver ratio filter. Over the last 5 years the best gold “buy” opportunity was April 2011, ideal silver was last quarter 2008; the lifetime trend since 1984 still favors silver.
No matter the 2012 election outcome the market will go emotional before 2013. Use Gold/Silver ratio and take advantage of precious metals buying opportunities.
Sorry, properly sourced article:
The US money markets and the price of gold
Published on August 19th 2012
There are currently three potential policy measures that would have a relevant impact in the commodities markets
What do USD money markets have to do with gold? Money market funds invest in short-term highly rated securities, like US Treasury bills (sovereign risk) and commercial paper (corporate credit). But who supplies such securities to these funds? For the purpose of our discussion, participants in the futures markets, who look for secured funding. They sell their US Treasury bills, under repurchase agreements, to money market funds. These repurchase transactions, of course, take place in the so-called repo market.
The repo market supplies money market funds with the securities they invest in. Now what do participants in the futures markets do, with the cash obtained against T-bills? They, for instance, fund the margins to obtain leverage and invest in the commodity futures markets.
In summary: There are people (and companies) who exchange their cash for units in money market funds. These funds use that cash to buy under repurchase agreements- US Treasury bills from players in the futures markets. And the players in the futures markets use that cash to fund the margins, obtain leverage, and buy positions. What if these positions (financed with the cash provided by the money market funds) are short positions in gold (or other commodities)? Now, we can see what USD money markets have to do with gold!
Lets propose a few potential scenarios, to understand how USD money markets and gold are connected:
If money markets have liquidity, there is abundant cash to buy US Treasury bills (i.e. the repo market is more liquid), and to finance those who short commodities in the futures markets. This is negative for the spot price of gold. If money markets lack liquidity, shorting commodities becomes more difficult. This is positive for the spot price of gold.
If the US Treasury bills become riskier, on the margin, the incentive to buy them will be lower and either money market funds will reallocate the cash towards commercial paper or they will face redemptions from fearful investors. The repo market will then lose liquidity. This is positive for the spot price of gold.
Alternatively, if the rate paid by the US Treasury increases AND the risk of these bills is NOT perceived to be higher (something possible in these rigged markets with doubtful ratings), investors will be more eager to place their cash with money market funds (falling prey to an illusion) and the liquidity of the repo market will increase. This is negative for the spot price of gold.
Why do we bring this up? To be honest, it is not the first time we do so. We have introduced the topic in our letters of July 2nd, July 30th and August 6th. We bring this up today because we want to raise awareness on some measures under consideration by the US Treasury and the Federal Reserve, that will have a direct impact on the USD money market, and hence, the repo market and the price of commodities. These policies are:
1) Minimum Balance at Risk (MBR): Kills USD money markets = lowers liquidity in repo market = Positive for gold
This has been in the works since 2010, but is only now taking shape. On August 15th, Bloomberg had a post on this under the title Feds Dudley backs money fund rules to protect US Economy. If enforced, there will be a minimum balance, which holders of money market fund units will not be able to redeem, but after a lock period. Effectively, under distress, redemptions will be restricted. As well, there are other potential measures, like floating the funds Net Asset Value and capital requirements. But the MBR one is the most relevant: It will make market participants see money market funds as a risky investment.
Personally, we do not see the motive behind this move because if, as some deduce, policy makers in all honesty believe that the savings currently in these funds will be reallocated as a result to bonds or stocks (boosting asset prices), they are being naïve at best and utterly idiotic at worst. Whoever invests in money market funds does so to make an extra buck on liquidity. If he/she cannot make it, then the funds will simply remain in a chequing account. Would banks use these funds in the chequing accounts to lever up their investments? Into what? Money market funds? The recent experience in the Euro-zone (discussed further below) shows it is not the case. Banks will not lend more just because they have more deposits available.
In any case, this policy would drain liquidity from the repo market and financing positions in the futures markets (i.e. shorting gold, for instance) would be more expensive. This would be positive for the spot price of commodities.
2) Introduction of Floating Rate Notes by the US Treasury: Positive for USD money markets = Negative for gold in the short-term, positive in the long-term
We introduced this point in on August 6th, after reading a series of articles at Zerohedge.com. Floating Rate Notes are variable rate notes. If floating rate notes were issued and interest rates rose (either driven by the Feds policy or by the market) they would have a strong bid from money market funds, bringing liquidity to the repo market. This could continue supporting speculative shorts in the futures markets, which would be negative for spot commodity prices in the short term.
However, if these rates are seen to be sticky, the Fed would have to intervene, targeting rate caps. But to guarantee the cap on the price of a good, one has to offer unlimited supply of that good. If the Fed had to guarantee a cap on NOMINAL interest rates, it would have to offer unlimited supply of US dollars. It is now easy to see why, in the long run, issuing floating rate notes would therefore be positive for the spot price, in US dollars, of commodities.
3) Zero interest on excess reserves: Would kill USD money markets (just like it did in the Euro zone) = lowers liquidity in repo market = Positive for gold
After the July 5th decision by the ECB, to pay nothing on its deposit facility, Euro-zone banks deposits at the European Central Bank plunged (see below, source: Bloomberg), by the tune of EUR484BN!!!
Did this money go to stocks? No! To bonds? No! Where did it go then? To a chequing account at the ECB. In the process, the Euro money markets died and the repo market suffered heavily. We had warned here that this measure would only make Euro banks less profitable and hence, riskier.
Because commodities are not traded in euros, this has not impacted the commodities market. But should a zero-interest-on-excess-reserves policy be implemented in the US dollar zone, the effect on the repo market would be to drain liquidity, a negative for futures markets and a positive for spot commodity prices.
In conclusion, there are currently three potential policy measures that would have a relevant impact in the commodities markets. Forewarned is forearmed.
Interesting strategy. What will you cash in your gold for?
Send treats to the troops...
Great because you did it.
(An entirely free service)
Jordan has been reading the advice of too many Freepers. I’m surprised he didn’t mention lead and brass.
He also apparently doesn’t have a handle on the currency markets. As the major currencies are devalued the price of gold increases. While demand a is factor in the gold pricing equation currency valuation has a greater effect. The other indicator is oil.
Gold and oil prices rose in tandem. The correlation was not perfect but it was apparent. A curious thing happened. As the Euro became troubled and European bonds became scary, money fled to US treasuries. That resulted in a decrease in he rate of weakening of the US$ and that resulted in a plateauing of the US$ price of gold.
The total US debt is now barely shy of $16 trillion. The only way that debt will be repaid is with cheapened $$$. That means in the long term, gold will continue to rise. Those who buy and hold will do well