So asks Merryn Somerset Webb (www.moneyweek.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Webb goes on to explain, in part:
All sorts of reasons…
- Panic begins [and] traders deleverage in a flight to liquidity (cash and the US dollar in particular) and everything gets hammered in the process. In 2008 this effect on gold (it fell 30%) was pretty temporary.
- When traders get margin calls (i.e. they have to stump up extra cash as collateral for some of their trading positions), they tend to raise the cash by selling profitable positions rather than non-profitable ones (who wants to book a loss?). Gold has had an amazing run so far this year so it makes sense for panicking people to take their profits on it in a hurry. The selling of winning positions like this says SocGen is “indicative of the stress the market is under.”
- Then there are exchange traded funds (ETFs). The sudden market understanding of the risks the global economy faces means that all the industrial metals have fallen fast (platinum, palladium, copper etc). These metals are often traded in packages or indices along with gold. So when they are sold the gold price falls along with them.
The fact is that while it would be nice if gold always went up in a crisis, short term it can get just as burnt as everything else, just as in 2008.
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So what next?…I am still a happy holder of gold…The only thing that could really mean that it was all over for gold would be a long period of deflation in the west and, while I’m sympathetic to the arguments for that, I am not convinced of them. Bernanke might not have turned the printing presses in the U.S. on last week (we got Operation Twist instead) but I bet he still has them primed and ready to go. The same goes for the Bank of England and the ECB.
In last week’s MoneyWeek, we quoted James Grant as saying that the price of gold was a function of the market’s trust in central banks to protect the value of our currencies. “It is one divided by T where T stands for trust and trust is a shrinking number and will continue to shrink.” I can’t see how that has changed since last week.
“We overshot on the upside when [gold] went over $1,900.We’re now close to bottoming at $1,500, and if that doesn’t hold it could bottom to between $1,100-$1,200.”
A few weeks ago (August 31st) I wrote about how gold was starting to top and that everyone should expect a very sharp drop to the low $1600 area… [and] only three days later gold topped and it has not stopped falling since. At that time [however]…gold was still building the top pattern so I could not say how long a recovering would likely take nor did I know exactly when to re-enter a long position but now that we have seen how gold arrived at my target price I can form a new forecast. Words: 1078
The Gold (and Silver) bull continues to closely follow the giant wave formation of a tsunami. The recent more parabolic rise in Gold up to above $1,900 is analogous to the little ridge of water we first saw way out in the distance, and now, much like when the waters recede from the shore early in the tsunami wave formation, Gold is undergoing a correction. Words: 1557
Goldrunner: a Gold & Silver Tsunami is Approaching – Fast! A tsunami doesn’t start with a bang, but with a whimper. The first sign is a little hump in the water way out in the distance that is barely notable. Anyone who catches a glimpse of it simply continues to expect the day to be the same as the last many days – calm and beautiful waters along the shore. This is the point where we are, today in the Precious Metals sector. Many have seen the little roll of water out in the distance as Gold edged up in the first move of a more parabolic slope, yet most investors are mired in the same expectations of yesterday – a return for Gold to correct down into a lower base. Our analysis based on the fractal relationship to 1979 shows, however, that the mid 900s are a realistic target for the HUI by the end of the year or early in 2012; that $52 to $56 should be achievable for silver, with $58 to $62 as real possibilities; and that Gold should go the $2250 level followed by $2500 with the potential for $3,000, or a bit higher, now on the radar screen. Let me explain why that is the case. Words: 2130
155 analysts have gone public, to date, in maintaining that gold will eventually go to a parabolic peak price of at least $2,500/ozt.+ before the bubble bursts. Of those 155 a total of 140 believe gold will reach at least $3,000/ozt., 101 see gold achieving a price of at least $5,000/ozt. and 20 maintain that gold will reach a parabolic peak price of $10,000 per troy ounce or more. Take a look here at who is projecting what, by when and why. Words: 832
A review of the gold price written by Robin Bew, chief economist at HSBC Bank, proposes that the gold price isin danger of entering bubble territory and predicts a sharp correction by year-end to $1,000 per troy ounce by 2013. [Let’s examine Bew’s views more closely.] Words: 725
When you just consider the downgrade of U.S. debt, the jobs problem, the housing situation, the European bankconcerns and their debt crisis, the negative outlook for the global economy, not to mention that the Fed will likely seek new measures to help the economy, we just don’t see gold coming down any time soon, other than having a normal downward correction [as currently is the case. Let us show you why.] Words: 1102
Why is gold falling as the financial crisis worsens? After all, isn’t gold some sort of safe haven? [Let me explain.] Words: 605