Author Topic: So. . .what's the deal with gold (down > $100/oz) and silver (down > $4 oz)??  (Read 3766 times)

Offline The Professor

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In the past two weeks, gold has dropped from over $1420 to (at the time of this posting) $1314.

What's the spin on this?  A temporary readjustment?  A correction?  Granted, it's down only a little over 8%.

Should this now be considered a good time to buy, buy, buy?  Or should we get out while the gettin's good and we lose even more money?

Even silver is down from a high of over $31 to currently $28.  Is this a similar adjustment?  Is this a dip before the massive spike or the harbinger of a serious downturn?

Not looking for any specific advice, I just find it curious that there are reports of sellers running out of silver, the mint not having silver to produce, etc. . .yet we see the prices dropping. Last time I did economics, lack of supply in the face of demand meant increased prices.

Thoughts?  Comments? Spin? ???

The Professor

Offline Greywolf27

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I don't have any info as to why, but I have to say that I was thinking the same thing.  Yesterday at the end of day, silver spiked and went up 2%, today... the exact opposite.

My thoughts;
if it drops back to $20.00 ish I will be buying, I am on a buying hold at the moment while I elimate my debt (only 3.5-4 months left) 

I don't view PM's as a get rich quick sorta thing... unless the price REALLY spikes (think 500%)  At that point it would be hard to hold onto it with the value gained.

Offline tamo42

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Really there are lots of reasons: preference for the metals over paper, raised margin requirements on comex, usual profit taking, etc. If you want details, I wrote a post about it http://www.livebusinesschat.com/smf/index.php?topic=3009.0

Offline bsutter

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In the past two weeks, gold has dropped from over $1420 to (at the time of this posting) $1314.

What's the spin on this?  A temporary readjustment?  A correction?  Granted, it's down only a little over 8%.

Should this now be considered a good time to buy, buy, buy?  Or should we get out while the gettin's good and we lose even more money?

Even silver is down from a high of over $31 to currently $28.  Is this a similar adjustment?  Is this a dip before the massive spike or the harbinger of a serious downturn?

Not looking for any specific advice, I just find it curious that there are reports of sellers running out of silver, the mint not having silver to produce, etc. . .yet we see the prices dropping. Last time I did economics, lack of supply in the face of demand meant increased prices.

Thoughts?  Comments? Spin? ???

The Professor

The information presented below is my opinion. Please feel free to criticize, improve, suggest, or rip it apart. This might be fun.

I do not know how familiar you are with the markets, however, your concern about a two week drop is an indicator. At this stage investors in PM's (precious metals) should hold long. By that I mean our current economic situation is akin to being on a train entering a tunnel through a mountain that is about to experience an earth quake. Those of us on the train have no idea about what will await us at the end of the tunnel, but we are there for the ride.

Now a tidbit about that ride, in 1964 I could buy a gallon of gas with a quarter dollar coin. Today I can take that same 1964 quarter dollar coin, cash it in at a coin dealer for scrap value and get enough money for a gallon of gas. The concept I am attempting to illustrate is that I personally do not view PM's as an investment, instead I view them as a hedge against devaluation of my assets.

It is typical for the market to rise from August through the end of the year as a result of the holiday seasons and resulting consumer spending internationally. Demand for PM's goes up for gifts in the form of jewelry etc. After the first there is typically a correction resulting from decreased demand. In addition to the "normal" cyclical nature of the market we have additional factors to consider. Many financial institutions are holding paper shorts. What does that mean? Well it kinda works like this. A person who we will call John Q. Public decides he wants to sequester some of his personal wealth in PM's. So he contacts a suitable financial institution for the move. If John Q. Public allows said institution to steer him into a "we will transfer your funds into PM's and they will be held at a specified location for your later retrieval" situation John has set himself up to become part of the paper short situation. The bank would then issue a paper receipt for the transfer of currency to PM's, charge for storage of the PM's and the PM's are not physically held in the vault, only on paper. This is what the fuss is about regarding the "crash J.P. Morgan by buying physical silver" movement. Ya See, if everyone demands physical holding of metal, the folks holding short paper would be caught naked, unable to fulfill the paper note.

During these times my opinion is to buy on the lows and sell nothing as I intend to hold for the end of that tunnel.

Points to ponder:

Silver is undervalued. The gold silver ratio was about 16:1 for decades, 16 oz. Au would get you 1 oz. Ag. Today it is 48:1.
Silver is consumed in many industrial processes, gold, not so much.

At this point cash is still king. Make sure you have cash in your stash. If we experience an economic melt down there will be a curve of acceptance for recognized methods of trade. Initially cash will work well, as the situation progresses things like junk silver coinage (pre. 1965) will begin to be accepted at melt value, eventually ACOS or silver / gold rounds / bullion will be accepted. However bear in mind that this will be a period of transition.

Do not put everything in one basket. Keep cash, have some PM, and pay attention to the rest as in food water etc.

If you do decide to purchase PM's take physical possession.

In closing I will relate one more observation. Gold and silver are not tied together. They should each run their own course. They run together because the market is being manipulated by the banksters. If / when the market manipulation (oh by the way, that is supposed to be illegal) ends we will see a return to the "true" value of PM's.

Thanks for reading.
Bill

Maryetta

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I'm in agreement with Bill - but I've also read recently that those who bought "paper investment gold" (not physical gold) are seriously dumping right now, driving the price down.
One example of logic to confirm this is the mining productions have not slowed, they have in fact increased, but the supply of "physical gold" is very much in short supply due to the heavy demand. 
So, if production is up, people are taking possession of the "physical" as fast as it becomes available I'd say the dive in the price is a) manipulation of pricing, and b) the dumping of the "paper gold".

endurance

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I think it's a correction at this point.  The price went up too quick to be sustainable and was driven more by fear of inflation than actual inflation, with a little bit of fear of global currencies (By normal people, not those who actually understand that there's reason to fear). 

I think gold has a good chance of getting back in the $1000-1100 range at some point this year, but as the economy heats up, oil and other energy prices will rise, which is going to lead to inflation, which is going to keep prices high.  I don't see any extreme runs in either direction this year, but then again, a black swan could prove me wrong.  I read in a newsletter I get that Belgium and Portugal are likely to need bailing out this year.  They're both small economies and the market has probably already factored them in, but you never know.  Japan got downgraded by S&P today, Spain still has problems, Italy is a mess and the entire continent of Africa seems to be extremely unstable at the moment.  Thus, any forecast I even think of making is a fools errand and at best a guess assuming the worst doesn't happen.

Offline Greywolf27

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Heavy topic.  Bill, what you have said makes a lot of sense. 

My personal thoughts; the market will build until July/August, PM's will probably run stable/go down until that point.  At that point you will have a lot of people moving their assets from the market to other areas.  I think our gov'ments spending will fuel this, along with legislation that will reinforce the need to physically hold assets. 

There are other factors:
Food
Energy
Legislation
Political atmosphere of the world

All of these can and will have an effect.  We each make need to make our financial decisions based on our specific situations.  Knowledge on the matter is king.


Offline bsutter

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I have a bit more to say.

I will again preface this with the fact that the following is my opinion and is subject to all the criticism you can muster. Feel free to tear it apart.

Okay folks, I am going out on a limb here. I am a TSP (Tall Skinny Person) small branches do not scare me.

Tomorrow you will most likely witness a continued downtrend in Au and Ag values. This is to be expected, it will continue through mid April, possibly as far as early June. This is an opportunity to purchase PM. Look for an upturn going into July, then building through August back into the cyclical Holiday trend. Now for the caveat, I have no clue what impact QE2, or QE3 will have on this projection. I am / we are on uncharted ground. A devalued dollar would / may have significant impact.

Watch the market, make well informed decisions based on your personal situation. When I said a downtrend above please understand there will be spikes in there. Please watch the trends, refer to historical charts, and bear in mind that historical charts are a guide for what occurred in the past. We are sailing uncharted waters, walking unmapped ground, the past is a guide, the future is unknown.

Perhaps we can help each other through these times.

Bill

 

Offline Nicodemus

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I don't mind a downturn in precious metal prices. It just means I'll buy. I'm not counting what it means to me in the immediate future. I'm going for Long Term Investment or SHTF, whichever comes first.  :D

Maryetta

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http://www.zerohedge.com/article/meet-man-behind-liquidating-hedge-fund-blew-gold-market

Quote
    A huge trade by a tiny hedge fund has sent shudders through the gold market.

    Thanks to the nature of futures trading, Daniel Shak's $10 million hedge fund held gold contracts valued at more than $850 million, more than 10% of the main U.S. futures market, and the equivalent of South Africa's annual gold production. (underline added)

    But as gold prices started falling this year, the trade, which was a combination of being long and short gold contracts—bets that prices will both rise and fall—started going bad. Monday, he liquidated his position, and is returning money to clients.

    As a result, the number of gold contracts on CME Group Inc.'s Comex division plunged more than 81,000, to about 500,000, the biggest single reduction ever. While his trade didn't account for all of the contracts, an average daily move is about 3,000 to 5,000 contracts.

    That Mr. Shak and his firm, SHK Asset Management, could control one of the largest positions in the gold market underscores how leverage can enable investors to control huge positions in many commodity markets.