Why are gold and silver tanking so rapidly?

[Jayhawk]

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

My deflation buddy has me convinced gold is going to the mid 600's in the next few weeks...and to the 200's in the next 2 years. He called it last week, so now I'm believing him because of the big drop.:eek:

[Nicolasd]

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

Thank you all for the opinions and comments......

I was just checking to see if we were all singing the same tune after the hair cut we all "enjoyed" this week (some people's hair cuts probably shorter than other ! :eek::rolleyes

Apparently we are all in tune with dissonance from Tulpen and Blazespinnaker.

Itulip economic analysis and my adherence 6 months ago has been a 180 turn around after 15 years of relative success in investing in the traditional equity markets.

I am not daring enough to trade PM's short term so I remain long silver and gold.

Amen, Nicolas

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

There are some very powerful factors pushing the value of currencies in general, and the USD in particular, lower, no question. They are notoriously well known. But there are also factors pushing in the other direction, that may not be so well appreciated.

People will point out, for example, that there is nothing backing the US dollar. Sinclair is one of them. They are wrong.

They assume that gold or other tangible backing is the only possible backing. But the USD is backed by something better than gold. It is backed by the fact that millions - even billions - of people owe the stuff. This means they are willing to trade their labor, accumulated assets, whatever, in order to get dollars. They have to because the owe them. The USD is backed not merely by gold, but by human time and effort.

It is of course possible - not to mention usual - for that backing to be overwhelmed by those factors militating in the opposing direction. USD can be created by its stewards practically at will from practically nothing. For this reason, USD tends to lose value.

But to give primacy to this latter force and completely forget about the former is grevious error. The reality is a tug of war, and each side gets its moments of advantage.

The US govn't owes them too. Trillions of them in national debt and future promised obligations. That strikes me as a huge incentive to print many many more of them.

I'm certainly counting on this same concept to cheapen the cost of my mortgage over the years in real terms. Maybe in a decade I can take a paycheck and pay off the last 19 years of my mortgage.

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

Unlike oil, real estate, or many other commodities, gold has no significant intrinsic value. It has as much value as sand dollars you can pick up on a beach, really.

You can't eat it, you can't live in it, you can't fuel your car with it.

The fact is, if gold really had any value, we'd probably try to create it from depleted uranium or something. But it doesn't have any value, so we don't bother, and gold bugs bid it up like rare stamp collectors.

Not that anyone around here is like that! ;)

Basically, I agree with Tulpen that it is in a speculative bubble. If you really feel the need to hedge/speculate against the dollar, I'd listen to Jim Rogers, and plow into agriculture or many of the other necessary things we need to live. There is a big difference between structural problems with the dollar and buying gold to defend against those structural problems.

I could believe that gold could go to 2000 and still not buy it. I have this general rule about only buying things that I think are relevant to the real, productive world.

BTW also, look at gold history. Gold bugs can talk all day long, but they can not deny the historical volatility. If you're OK with that, then I suppose it's your game. Those long term graphs look like a casino to me, though. I could not sleep with my money in gold, knowing that the IMF or whoever could just bail on gold overnight.

Before I knew better I used to have the same opinion of it. It's hard to get one's head around the area that something is designated as valuable above its functional use. But thank god you and others think of it this way. It's keeping a lid on the price until I can get enough cash from other sources to put into gold. I'd have another $250,000 in my account had I been able to get funds into it last summer instead of adding it gradually as money was freed up.

Have you read any of the reasons given in various books/columns for why gold has value in this situation?

People like to show graphs from 1980-now and point out how poorly it did. But it went from $42/oz to 20 times that in 9 years in the 70's before that. You know, a period of high inflation, lackluster stock market, and high oil prices. Sound familiar?

Each investment class has its time and purpose.

By the way on Survivor tonight they showed huge stones that used to serve as currency in micronesia. They were valuable because someone said they were. Today worthless other than as relics. Yet after 5,000 years gold is still used to store value. So it's not really the same thing as starfish or large stones, is it?

Gold will go up and down. But with the train wreck our economy is, I think it's going up before it goes back down. I certainly find it less speculative than bidding on future income flows of companies headed into at best a deep recession. Especially ones that don't even pay dividends and until they do are purely speculative.

[Finster]

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

Please ask yourself: "What, in the context of macroecomic conditions, has changed?"...

There are some very powerful factors pushing the value of currencies in general, and the USD in particular, lower, no question. They are notoriously well known. But there are also factors pushing in the other direction, that may not be so well appreciated.

People will point out, for example, that there is nothing backing the US dollar. Sinclair is one of them. They are wrong.

They assume that gold or other tangible backing is the only possible backing. But the USD is backed by something better than gold. It is backed by the fact that millions - even billions - of people owe the stuff. This means they are willing to trade their labor, accumulated assets, whatever, in order to get dollars. They have to because the owe them. The USD is backed not merely by gold, but by human time and effort.

It is of course possible - not to mention usual - for that backing to be overwhelmed by those factors militating in the opposing direction. USD can be created by its stewards practically at will from practically nothing. For this reason, USD tends to lose value.

But to give primacy to this latter force and completely forget about the former is grevious error. The reality is a tug of war, and each side gets its moments of advantage.

[rj1]

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

I think it's just profit taking.

Gold had been going up up up for so long, it was due for some pullback, just as the market was going down down down and it was due for an uptick on Tuesday.

Now what I can't figure out is the Fed cutting 75 points and the U.S. dollar goes up against almost everything.

[goldisliberty]

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

Please ask yourself: "What, in the context of macroecomic conditions, has changed?"

What has propelled the USD down the last eight years is, if anything, even more likely to achieve (basis the USDX) a level some 20% below where's we are trading now. Sinclair's target of .52 is most reasonable. Gold is essentially the anti-paper currency, the anti-dollar, if you will. It will take more and more depreciated dollars to buy an ounce of gold due to the principle of declining marginal utility.

Why? The NYFed and JPMChase BSC affair was not a rescue of the fifth-largest Primary Dealer on The Street. It was a desparate, midnight-oil-burning defense of the financial-system-entire.

Because BSC was a counterparty to trades with not just JPMChase, but all manner of other money center banking entities, its collapse would have triggered the long-dreaded "Cascading Counter-Party Default Debacle," which may very well still occur this calendar year.

What is gold, ultimately, but a borderless currency? As GATA's Chris Powell put it so eloquently several years ago, holding a British Sovereign in hand, "In all places, at all times, this is money." He referenced why such .2354 ozt coins are in fighter pilot survival kits and not just banknotes of one nation; it time of true conflict, paper is poverty.

Ask yourself further, how can lower rates tease more, rather than less foreign money into dollars since those off-shore stores of value are zooming around the planet seeking the best return.

No. Take-downs occur all the time and we should look for increasing volatility, not less, going forward.

The bull's job is too shake off those with weak hands.

1896, 1932, 1980: Approx. one ounce troy of AU buys the DJIA. It has happened three times before, it will, assuredly happen again in the next five years. 1999, 46-44 ozt buys the DJIA; today the DOW:GOLD ratio is down to 12.83; within the last week we've touched 11.9 and we will correct here and head down to under two ounces of the yellow metal buying the thirty industrial shares of the DJIA before 2012-3.

As the Oracle told Neo in Matrix (1st): "Somethings you know, balls to bones."

Could I be wrong?

As much as I dislike answering questions with yet another question...please ask yourself, with just the federal budget debt level now over 9.4 Trillion dollars and Congress discussing raising the debt-ceiling to 10.2 T long before the 30 Sept 08 end of federal fiscal year...and the annual debt service on this debt over 400 billion dollars...and atleast 55 T dollars of off-balance Medicare and Soc Sec entitlements ahead...DO YOU REALLY BELIEVE THE USD will remain a unit of account, store of value, preserver of purchasing power?

If yes, sell gold and buy USD.

If not, consider days such as this a bargain.

Cause that's what this is.

Look, the FED is now making markets...not just setting short-term rates. They are working nights and weekends.
They are, as they should be, scared.

They are talented. But ask JK, sometimes even in level 1 trauma centers, the bleeding is so bad from so many wounds the best can't save the patient. (I'm not a doctor; he is.)

Algorithms are calculated (back to finance and gold) and stops are well known. If you're short and you can trigger a stop-loss sell program, you can achieve carry-on selling and make more on the downside. Non-program traders take over, so to speak, and fear drives the short-timers from the game. Kinda like sight of blood for the neophytes and uninitiated.

Here's the deal and Sinclair has turned it into a mantra: If you're not leveraged, you own physical, the ounces don't shrink if the dollar-denominated prices bounce around wildly.

I'll end with a direct quote from Jim Sinclair:

"Gold is going to $1650 and no camouflage of conditions can stop it because the dollar is hopeless."

JS has stressed we are approaching $100 swing days.

Get used to it.

Get long (un-leveraged) and Stay Strong. All the dollars created since 2000 are headed this way and no dam on earth will stop their having EJ's Poom effect (as in Ka-Poom).

Prosper & be well.

[mercerbear]

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

I hope it dips well into the 800's. I'd love to have another cheap buying opportunity before it cranks back up!

[Finster]

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

Unlike oil, real estate, or many other commodities, gold has no significant intrinsic value. It has as much value as sand dollars you can pick up on a beach, really.

You can't eat it, you can't live in it, you can't fuel your car with it.

The fact is, if gold really had any value, we'd probably try to create it from depleted uranium or something. But it doesn't have any value, so we don't bother, and gold bugs bid it up like rare stamp collectors.

Not that anyone around here is like that! ;)

Basically, I agree with Tulpen that it is in a speculative bubble. If you really feel the need to hedge/speculate against the dollar, I'd listen to Jim Rogers, and plow into agriculture or many of the other necessary things we need to live. There is a big difference between structural problems with the dollar and buying gold to defend against those structural problems.

I could believe that gold could go to 2000 and still not buy it. I have this general rule about only buying things that I think are relevant to the real, productive world.

BTW also, look at gold history. Gold bugs can talk all day long, but they can not deny the historical volatility. If you're OK with that, then I suppose it's your game. Those long term graphs look like a casino to me, though. I could not sleep with my money in gold, knowing that the IMF or whoever could just bail on gold overnight.

So what do you do with your uninvested balances?

Everything you just said about gold - no intrinsic value, eteceras - applies to USD as well or better. And you would have lost 75% on your USD over the past eight years if you had been applying that analysis all along.

As for those utilitarian things you list, they're having a rather bad hair day, too ...

[Jim Nickerson]

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

Actually, I sleep as well as can be expected(wearing my c-pap machine for apnea.
What's safe these days? I invested in a fixed-rate annuity (supposedly ultra-safe) that went belly-up in the nineties because of bad real estate investments in New Jersey.
I sleep better because at least now all of my investments are rolled over in a self-directed IRA. And if a mistake happens, its my mistake, but at least I done as much due diligence as I can. Therefore, I can sleep!

I salute your stance--a man willing to take his own actions and accept full responsibility for doing so. You can't beat that in my opinion, algerwetmore.

[algerwetmore]

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

Fair enough... I was getting a little hyperbolic. But, the point is, I wouldn't be suprised to see someone sell their gold in exchange for more tangible assets.

Anyways, the rapid decline over the last day or so.. last time we saw volatility like this was in 2006. 8% decline in 48 hours .. every 2 years?

I really have no idea how gold investors can sleep at night.

Dollar bear, I can understand ... gold buying at these levels, I really do not.

Actually, I sleep as well as can be expected(wearing my c-pap machine for apnea.
What's safe these days? I invested in a fixed-rate annuity (supposedly ultra-safe) that went belly-up in the nineties because of bad real estate investments in New Jersey.
I sleep better because at least now all of my investments are rolled over in a self-directed IRA. And if a mistake happens, its my mistake, but at least I done as much due diligence as I can. Therefore, I can sleep!

[friendly_jacek]

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

It's a weird action today, as all commodities and equities are going down rapidly. More yen unwind vs. big selling placed by commercial traders? There could be also some selling to raise money for capital gain tax a la 2000 and 2001 this time of year.

[touchring]

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

I think we're not doubting the LT direction of precious metals, but whether the C period (H1 2006) will repeat itself.

If commodities tank, and the US $ goes into a sustained rally, the stock market will tank too. All that's been propping up earnings for a broad swath of US companies are gains on currency conversion for foreign earnings.

I doubt the Fed wants that scenario...

[GRG55]

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

Just to start a discussion --all opinions welcome

Have a look at the US $ action against the Yen and Swissie today. Doesn't look like Hank's "strong dollar" dream is about to come true just yet.

If commodities tank, and the US $ goes into a sustained rally, the stock market will tank too. All that's been propping up earnings for a broad swath of US companies are gains on currency conversion for foreign earnings.

I doubt the Fed wants that scenario...

[touchring]

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

Looks like more of The small trade within the big trade.

Fine with small trade within the big trade, but the C period (H1 2006) 20% correction is not exactly small. :eek:

Within the current rapid speculative trade, we are watching for short term price volatility much as occurred at the end of the previous similar period C (H1 2006): a 20% correction from $720 to $580. A similar correction today would take gold prices down $200.