Why are gold and silver tanking so rapidly?

[zoog]

Re: Why are gold and silver tanking so rapidly?

My my, gold drops about 8% (so far) and people start freaking out. I'll admit, the suddenness was a head-turner. Curious to see what happens in the next week or two.

Reading through this thread and Who is shorting Gold?, these ideas about unknown überpowerful entities manipulating the market... it's all a bit much. I like conspiracy theories as much as the next guy, but I'm reluctant to believe in them.

Besides the puppetmaster theories, there are some good thoughts here. Gold has been cranking up at an unsustainable pace... various posters here have been talking about a correction for quite a while now. Of course, none of us knew when it would happen, and inevitably it comes when you least expect it, but beyond the timing, no one should be surprised.

After reading everyone's posts and some links to external articles and such, my conclusion is that this sudden drop is the result of a combination of factors.

Hedge funds and other large players got into gold and saw an opportunity to get out at profit. Some large players likely were using leverage and thus can have a fairly large effect on the price of gold with (relatively) small sums of money. That's the whole concept of the basic principle of a lever.

Apparently Bear Sterns had a large long gold position that is being sold off... well of course this affects the short-term supply/demand equation. Perhaps the CB's sold some of their gold last week as well, or at least claimed they were going to.

Even the seasonal factors play a part... gold often drops lower in mid-March before heading back up into May. Then there's just the herd mentality. Once something starts falling in price, especially if it's quick, people panic and bail out, dropping the price even more.

I don't believe that anyone, central banks included, has the resources to singlehandedly drop gold 20%. But if anyone was inclined to attempt to manipulate the price of gold, they'd surely be smart enough to coordinate their efforts with these other factors to amplify whatever effect they might have on their own. Again, leverage. I don't think it takes a gazillion dollars to move the gold market 8% if your lever bar is big enough.

Re: Another question: Why is gold and silver tanking so rapidely?

People who buy gold in large amounts of their portfolios are speculators. It is way too volatile (just look at the history - it's undeniable).

They're like the poker players who go all in because they have a hand that has a 60% chance of winning.

Sure, you *should* win, but their is a good chance that you could also face something called "gambler's ruin". If you bet more than 50% of your portfolio, there is a very good chance (40%) you're going to have a hard time coming back. Even if you bet 20-40% of your savings, there is a chance you could lose two times in a row. (about 1 in 6) .. Do you really want to gamble your life savings on a 1 in 6 chance?

And there might not be another 60% bet that'll come along to help you dig out of your hole.

Going all in, when you bet 5%, even 10% of your total portfolio makes sense. You can do that quite a few times, and it's pretty darn unlikely you'll face ruin before you go beneath your ability to come back on future bets.

Gold is simply far too volatile to bet a large chunk of your portfolio on.


As for 'it's the asset class of the future' ... You need to be pretty god dammned sure. You need proprietary models that are beyond the reach of the public if you plan to beat the market. You won't find advice on a public forum, because anything here is probably already priced in. People like Warren Buffet can beat the market, because they have access to data that is not available to folks like you and I (he gets stats from all his own companies, etc)

I'm not following the gambling stuff, but you're quite right that going "all in" is risky. The same could be said for any asset class, though. I'd sure like to hear opinions on other things to invest in that will perform well in a horrible economic environment with high inflation. Other commodities come to mind. But they seem just as prone to speculative forces.

The problem is, most of the other asset classes will perform very badly if the economy tanks and inflation skyrockets, while gold has done well in that environment. Today's gold price is based on a huge percentage of people thinking everything is just like 2001 or 1991. I don't happen to agree.

I like the aspects of gold as a hedge against bad news. Say we're wrong and the economy does fine. We lose. But how much? How fast? I wouldn't care a bit if the economy recovers quickly and I lose 50% in gold. I made almost 50% in just the last last year in it, so I'm still ok. Because things turned out ok, my and my wife's incomes will remain solid, inflation low, and we'll be fine. This is a LOSE-WIN.

If I'm right and gold continues its rise due to fundamental factors and the economy recovers quickly or doesn't go into depression, and I sell above $2,000 but below any "crash", it's WIN WIN.

But IF I'm right and the economy tanks badly, inflation rises rapidly, and we enter a depression-like environment, and I'm holding the same mix of treasuries, index stock funds, a few bonds maybe, and one or both of us is unemployed, it's LOSE LOSE. I'm much broker, unemployed, and have nothing to offset it.

Of course there are combinations of allocations involved, but to me the arguments for gold rising are much stronger than for stocks or bonds or treasuries even matching inflation. I can limit risk being 'safe' but in an inflationary environment that can be a risky move it itself.

I also found the research on the stock market history interesting. We came of age in the golden era of stocks. So I'm trained to think the dollar cost averaging march is the way to get wealthy. But before that, the entire decade of the 70's was a bear market for stocks. Toss in the demographics of baby boomers starting to draw on their stocks in retirement, (and broke unemployed people cashing in 401Ks and IRAs) and it's not a sure fire winner either. Especially for someone with my time horizon.

But the point here is that gold has value as long as people agree it does. If we could get 6 billion people to agree it's silly, its value would go back down to its value for jewelry and industrial use. But it had value for more than that 5,000 years ago. And they weren't loading Spanish galleons full of sand dollars 500 years ago. And except for a 20 year period in recent times it's been pretty good at storing value at the very least. I'm a history buff, and one thing I've learned is that our society rarely looks enough at history, seeing the world only through our own short period on earth.

But the same "it's worth what we agree it is" concept holds for the dollar. And unlike gold, the market seems to have more faith in gold now than dollars, which have been in a pretty steady march down in value against most other currencies and asset classes. And it takes as much effort to print/create $1 billion of fiat money as it does $1. The same can't be said for gold. With over $50 trillion in unfunded obligations, and a wave of socialism approaching, my bet is that our govn't will print far more dollars than miners will mine gold in the near future.

I think it comes down to if one thinks this is a "typical" economic cycle event or something very much more serious. My common sense gut test tells me that we as a nation spend so much more than we earn that a huge period of reckoning is ahead.

[globaleconomicollaps]

Re: Why are gold and silver tanking so rapidly?

i cannot for the life of me remember what board i got this from, but i think it is terrific!

http://kereport.com/WeekendSpecial/WS032208-1.mp3

Re: Why are gold and silver tanking so rapidly?

Somnambulant American government (the dunce Congress for starters) has a hellacious wake-up call speeding straight towards it. But they will sit there, flat-footed and dumbfounded, for several years after Canada gets to the point of repudiating it's NAFTA oil export quotas, before understanding the ugliness of their predicament.

The ignorance and stupidity in Congress and the US Senate in observing the criticality of this problem is stunning. It makes you want to grab each one of these idiot Congressmen by the belt and administer a series of vigorous kicks in the rear - perhaps in the form of a prolonged, vigorous dance - several times around the Capitol to drive the point home.

Repeat after us:

"Elected stewards of the nation are supposed to STEER THE SHIP, prior to smacking into a brick wall on energy supplies!"

[Rajiv]

Re: Another question: Why is gold and silver tanking so rapidely?

GRG and NicolasD you might find this article by Tom Whipple in the Falls Church News Press interesting - "The Peak Oil Crisis: Stirrings in Ottawa" also reprinted in energybulletin.net

Based on recent experiences, some believe this week’s interest rate cuts soon will send oil to circa $120 a barrel.

Others are saying the winter heating oil demand is over and given the world’s precarious economic situation, oil will be down to $80 a barrel by summer. Both sides make plausible cases.

In the meantime, while waiting to see how this plays out, the question of just how much longer Canada will continue pouring so much of their national heritage into U.S. gas tanks has been in the news lately and deserves some consideration.

In recent years, Canada has been sending about 2.3 million barrels of oil each day, more than we get from the Persian Gulf, south of the border. The United States also gets about 3.4 trillion cubic feet a year of its natural gas from Canada. Many in the U.S. are expecting that increasing imports of synthetic oil extracted from Alberta tar sands will keep the U.S. functioning for many decades as other sources of oil decline.

If you are not that familiar with the Canadian energy situation, there are a few things you should know. Canada produces about 3.4 million barrels of real and synthetic (tar sands) oil each day and consumes about 2.36 million. So far, so good.

Canada is energy independent just like the Saudis, Russia, Mexico, and Venezuela. But I just told you something that doesn’t add up. If they are sending 2.3 million barrels per day to the U.S., they must be importing about 1.2 million barrels a day and indeed they are. Most of eastern Canada, including about half of Ontario, imports oil from abroad and is paying world prices. Of course, they are selling at world prices so the problem in the long run is not the balance of payments, but the availability. Add in some Canadian-style taxes and drivers north of the border are currently paying about $4.25 a gallon for gasoline unlike their fellow oil-exporter, Venezuela, where they are paying about 17 cents.

Another major factor in this equation is the NAFTA treaty with the U.S. which requires Canada to keep dividing its oil production with the U.S. in the current proportions, even if production is declining. Neither country may reduce the proportion of its energy exports to the other relative to the "total supply" of the exporting country during the prior 36-month period. Among other things this makes it tough to sell oil to China, should the Canadians be of a mind to do so.
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The big question in the next 10 years is what happens to NAFTA and the proportionality clause that sends so much Western Canadian oil down into the U.S. A big issue is that currently there is no pipeline bringing oil from Western to Eastern Canada. Trains are just not up to moving oil in the volumes it is consumed today.

If the calculations about the course of the world’s oil supply are correct, in two or three years prices are likely to increase markedly as demand simply outruns supply no matter the state of the world economy. When Canadian gasoline prices, currently a dollar or so a gallon higher than in the U.S., increase by several more dollars, political pressures on Ottawa will increase rapidly.

The real problems will come when shortages develop in Eastern Canada while oil is still being pumped into the U.S. At that point, a major paradigm shift in the U.S.-Canadian energy relationship is likely to occur.

Re: Why are gold and silver tanking so rapidly?

... Let's ask the customers of the customers of Rio, Vale or BHP about sub-prime, CDOs, Bear Stearns, recession, deflation, financial crisis. What are they going to say? Vale got 71 freakin' percent. No way the Chinese steelmakers aren't going to pass that on to their customers, and no way the customers don't know already know it. ... When was the last time we had all the OECD economies slowing down, led by the USA, while oil is at $100, copper at $3.60, lead at $1.20, and aluminum at $1.25. You deflationists and commodity bears out there: run a five year chart on these and then try to convince yourself we've had a commodity price "crash". ... Gentlemen (and ladies too!), start your engines. The fastest part of this little race will begin soon.

AKA: COGNITIVE DISSONANCE

Re: Why are gold and silver tanking so rapidly?

What's wrong with this picture?

PRECHTER CHARTING WITHOUT ANY AGENDA.jpg

Another view of the same "commodity" - inflation adjusted:

bubbly_silver.png

Beware the exquisitely erudite economist / financial analyst with a preconceived agenda. Cranks can appear in many appealing guises.

[BlackVoid]

Re: Why are gold and silver tanking so rapidly?

According to the above chart, the silver bull has 3-4 more years to run.

[BlackVoid]

Re: Why are gold and silver tanking so rapidly?

Not me, LOL. Wow, this is really stupid. This guy should check out the gold price in the 1930s and the late seventies. He is totally clueless.

Asians love gold. Gold production has peaked in 2001. Gold coorelates quite strongly with oil. Oil production has peaked in 2005. Enough said.

As for the reason for this big commodity slide, I think EJ had the answer a few days ago when he wrote about global deleveraging. Traders are selling risky bets with high leverage. This is a buying opportunity in silver, gold and oil. There may be more drops though, I am really not sure this is the bottom. I am going to buy silver under $17, oil under $100 and gold under $900.

Re: Why are gold and silver tanking so rapidly?

How many iTulipers holding precious metals are going to break into a cold sweat reading Robert Prechter's newest forecast attached below?

Faites vos jeux, Madames et Monsieurs, faites vos jeux! (Place your bets, ladies and gentlemen, place your bets!)

http://elliott.vo.llnwd.net/o18/pdf/0803EWTsilverxx.pdf

PRECHTER FORECAST FOR SILVER AND GOLD.jpg

Re: Why are gold and silver tanking so rapidly?

Moved To End Of Thread

[GRG55]

Re: Another question: Why is gold and silver tanking so rapidely?

Canada's oil sands are not sold to the US because of their migthy military. It is part of the NAFTA agrement which freed-up trade between US and Canadian markets. In turn , US has a became our best regular customer , accounting for 75% of our exports.This has enabled Canada to run current account surpluses and budget surpluses while reducing debt to somewhere around 33% of GDP .:p.

Canada, from it geographical position , does not need any type of military protection from potential enemies except perhaps from the US themselves should they become too interested in our ressources :eek:. Who should we ask then to defend ourselves ? China or Russia? :rolleyes:

Canada does depend on the US military for its protection. The armed forces of the two countries have a very high level of operational integration. Geography is not the protection it used to be, and it's actually getting to be a nasty, nasty world out there in some respects. :eek:

GRG55 could correct me if I am wrong , but my understanding is that there is a project to run pipe lines from Alberta to the British Columbia coast so we can sell oil to China and other pacific rim countries. Selling of our ressources to the US in USD is not an absolute necessity in today's shrinking global offering .It has been a mutually profitable agrement but it can not be taken for granted.

There have been some proposals to pipe oil west to tidewater, but I seriously doubt they will ever be built. More likely Canada will expand its coal energy exports to Asia instead. it seems unlikely that North American oil production will ever need to find markets outside the continent - unless our governments buy each of us an electric car, and soon.

There's also a proposal to build an LNG receiving terminal at Kitimat and pipe the natural gas east to connect into the existing export grid to the USA. This project only makes sense because the US has such a dysfunctional regulatory process to get a receiving terminal built on its own coastline. The Mexicans have permitted a terminal in Baja California that will pipe the gas north into California (Gotta keep Lukester's A/C running after all ).

Now that the FIRE-economy is in its terminal cancer phase, I figure Canada should just be patient. The Lower-48 will become the 11th province soon enough. :cool: Alaska will support it - after all they're even more wedded to government handouts than we Canadians. ;)

[Nicolasd]

Re: Another question: Why is gold and silver tanking so rapidely?

Don't forget an exceedingly powerful US military.

UAE has already agreed to continue pegging to the USD .. why? Because the US backs them up with their military. Both Canada (oil sands) and Saudia Arabia will also continue to support the USD with their oil for similar reasons.

Does gold have that kind of military / political clout? No.

Canada's oil sands are not sold to the US because of their migthy military. It is part of the NAFTA agrement which freed-up trade between US and Canadian markets. In turn , US has a became our best regular customer , accounting for 75% of our exports.This has enabled Canada to run current account surpluses and budget surpluses while reducing debt to somewhere around 33% of GDP .:p.

Canada, from it geographical position , does not need any type of military protection from potential enemies except perhaps from the US themselves should they become too interested in our ressources :eek:. Who should we ask then to defend ourselves ? China or Russia? :rolleyes:


GRG55 could correct me if I am wrong , but my understanding is that there is a project to run pipe lines from Alberta to the British Columbia coast so we can sell oil to China and other pacific rim countries. Selling of our ressources to the US in USD is not an absolute necessity in today's shrinking global offering .It has been a mutually profitable agrement but it can not be taken for granted.

On a final note, US military is exceedingly powerful ............for conventional wars. It is not so good for guerilla.

[Honzajs119]

Re: Another question: Why is gold and silver tanking so rapidely?

"further" info?

I have no info and gave no info, just reported a plausible sounding rumor.

Blaze's guess is a pretty good one too - Gold falling in sympathy with petroleum

Greg McCoach - emphasis mine

Mining Speculator Hotline

Hotline

This is Greg McCoach with a Mining Speculator Hotline for Friday, March 21, 2008.

Events this past week have prompted me to send out this communication regarding the sudden collapse of the precious metals prices.

Here is what is happening.

The demise of Bear Sterns, which was reported to the public Sunday evening and Monday, has in turn caused their assets to be sold off in masse this week.

On their book of liquid assets was a rather large, long gold position. It is being sold off in order to raise cash to offset their massive losses. The spot prices have been hammered because of this activity. It will be short-term in nature. If you're looking to buy physical precious metals to diversify your portfolio at this point, you are being given an unexpected gift to do so. It won't last long.

Another item in Bear Sterns closet was a massive short-position in the ten year treasury. This off course is being unwound this week, which is making the dollar looking a bit stronger than it really is. Don't be confused by this nonsense. The dollar will soon resume its downward trend.

The fact that Bear Sterns was shorting the dollar to such a degree shows that they were not playing along with the game of the establishment Federal Reserve banking crowd. They have been severely punished by the powers that be.

What brought Bear Sterns to their knees was their own riverboat gambling mentality that not only jeopardized them, but the financial system as a whole. This kind of story is just the beginning of what will be a long list of companies that meet a similar fate. Will the Fed and the citizens of the United States be able to bail out all the financial sewage that is about to be uncovered?

What the Fed is doing is nothing more than sleight of hand trickery to give to itself the assets of Bear Sterns. As I have said before, the Federal Reserve is no more "Federal" that Federal Express. It is a private organization owned and controlled by shareholders, the largest of which is J.P. Morgan Chase. J.P. Morgan Chase in other words is the Federal Reserve, so don't be surprised that they end up with the assets while you and I pay for the debts from the whole mess.

When are people in the United States going to wake up to the ugly realities that are now upon us? This ongoing calamity of financial chaos is going to cause extremely serious consequences to each and every American. Your wealth, security and lifestyle are all at stake as the coming months and years unfold.

You should be doing everything you can to:

1. Avoid, pay down, pay off debt
2. Buy physical precious metals - particularly gold and silver
3. Get money outside the country or at least in a better currency
4. Get away from dollar denominated risk
5. Get a food storage - you can't eat gold or paper dollars!

There are going to be banking failures in the United States and around the world. You should be evaluating the merits of who you bank with. Most of the big banks are in a world of hurt. The smaller, independent banks have not leveraged themselves like most of the big banks have. They may fare better, even though they don't offer all the nice, online services the big banks have.

As far as our junior mining stocks go, they will rebound. Right now they are getting hit yet again as investors like us prepare to write checks for our capital gains taxes. Yes, it appears many of us have waited till the last minute to raise monies to pay for these taxes. Most of us will have to sell something to pay for this.

So, in the next few weeks, expect further weakness as this takes place. The better companies will be hit with this activity as well. Those who have the cash to buy will be given the best opportunity to buy low and sell high.

After tax season however, and as the precious metals prices begin to make very large moves in April taking them to much higher levels, the juniors will finally begin to move again.

My message is to stay the course in your good positions, especially our Top Ten companies that are listed as Strong Buys.

As we move forward in the next six to eight months, I see a time where we will begin to beef up positions in companies that are either in production (such as Excellon, Jinshan, and Capital Gold, or are near-term producers. Companies that are more speculative and do not have any near-term production capacity will be eliminated. The reason for this is that the risk capital markets are going to be getting much tighter moving forward and many juniors who are still in the speculative phase will find it much harder to raise monies moving forward. I will be talking more about this in the coming months.

That is all for now.

Greg

[blazespinnaker]

Re: Another question: Why is gold and silver tanking so rapidely?

My point was twofold: 1) To counter the gold bug argument that currency can only have that value by which it is backed by gold (and deflate the highly overrated Sinclair a bit in the process); and 2) that the forces at work on the value of the USD are not unidirectional, but opposing. In particular, that the ability of the government and banking system to create a virtually unlimited supply is in tension with massive demand from people who desperately need it to service and repay debt.

Don't forget an exceedingly powerful US military.

UAE has already agreed to continue pegging to the USD .. why? Because the US backs them up with their military. Both Canada (oil sands) and Saudia Arabia will also continue to support the USD with their oil for similar reasons.

Does gold have that kind of military / political clout? No.