What is next for Gold & Silver? (obsolute prices now removed)

[Billy T]

"... Commodities fell to their lowest in almost 10 months and silver tumbled below $28* for the first time since February on speculation Europe’s debt crisis will worsen, curbing raw-material demand. Copper plunged below $7,000 a ton for the first time in more than a year. …
Cash gold fell 3.2 percent to $1,604.43, more than $300 below its record $1,921.15 an ounce on Sept. 6, after earlier today touching $1,532.72, the lowest level since July. ..."

From: http://www.bloomberg.com/news/2011-09-26/commodities-drop-as-silver-slumps-on-europe-debt.html before NYSX open on 9/26/11.

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*For immediate delivery, Silver is at: $27.3475/ oz. But hit low of 26.07/oz

Thus at their lows the Au / Ag ratio was 1532.72 / 26.07 = 58.79, far from my predictions of few months ago.

It is interesting to compare the first sentence (commodities, gold, etc. collapsed because of expected slowing growth & EU fears etc. with:

"{post 278}...Gold rose above $1,900 an ounce on speculation that economic growth will slow and Europe’s debt woes will worsen, boosting demand for a protection of wealth. ...

Where the explanation for rapid rise is also because of expected slowing growth & EU fears etc.

Conclusion: No one has the slightest idea why the price of gold moves as it does.
But they will quickly tell you why it did.

 

[nietzschefan]

Something fishy, You think they are managing to panic traders(75% of the market) while gaining positions on Gold reserves? They being banks and China.

 

[Billy T]

Something fishy, You think they are managing to panic traders(75% of the market) while gaining positions on Gold reserves? They being banks and China.

As I illustrted in last post no one really knows why gold price moves as it does - So my theory is as good as any. Here it is:

There are a lot of banks, sovern funds, (even the IMF if it is to help) etc. in danger now which need to raise cash - if they have gold, they are selling it as quietly as they can AND China, the world's largest producer of Gold, is watching to see how low gold will go before resuming its buying of gold.

 

[quantum_wave]

There is that, and that is true. Also there is a lot of leveraged gold paper out there as I recently mentioned, like GDP, and non-gold backed funds. Many have bet heavily with margin on gold to rise. Euro central bank selling to raise cash starts the price to decline and the leveraged longs get margin calls. Those calls began on Friday and will continue today and maybe through the week. The traders will sell because they are not going to offer cash to meet the calls. Gold will decline until the rush of calls has ended.

Now Europe. The crisis will require money printing and that will lower the Euro vs. other currencies and especially the Yen and dollar. Gold falls as the dollar rises based on math if nothing else.

I am a long term gold investor and I sold two thirds which was in GDP with long term gains when gold spiked. I was out before the high but certainly kept my powder dry before this round of declines. I hope you did too.

Being a beliver that long term gold will act like a currency that cannot be produced by the printing press and will therefore gain value as the world prints money. I feel I can average back into my full gold and silver positions over time and so though I nibbled Friday, I'll buy again on a dip to around $1500 if it looks firm there AND IF the news is out about the results of a favorable vote in Greece to limit spending on entitlements. Also I want to see the news about how Europe will bail out Greece, Italy and others on the verge of default. When the news is out and the money printing in Europe is quantified, then the Euro will stabilize and the dollar will too.

Then we have to look for what the US Fed will do to participate in the world bail out which may come out of the next G-20, I think in Oct.

Very interesting time and a excellent chance to wait and see lower prices but with a few clues of when to get back in. Good luck.

 

[Billy T]

With a longer view this drop is not bad.

The two biggest gold-based ETFs are: SPDR Gold Trust (GLD) & iShares Gold Trust (IAU)

GLD had assets of around $65 billion as of early October, and IAU about $9 billion in gold bars. Shares of both are backed by physical gold stored in a secure vault. {So they & auditors say.} The distinction, in addition to size, is:
Each GLD share represents 1/10 of an ounce of gold, while Each IAU share is 1/100 of an ounce of gold. IAU also has a lower expense at 0.25% versus the 0.40% for GLD. See 12 month graph of IAU's price & volume history at end.

Graph & data taken from Email received from: http://www.moneyandmarkets.com
Following comments {except mine in these brackets} is taken from this same source:

Even if you presume the ETF has stored away the correct amount of real gold* no vault is secure from government seizure. {US has done this once before - may again to reduce use of dollar printing presses.} GLD and IAU mostly use vaults in New York, London, and Toronto. A couple of newer ETFs offer a way to diversify your gold holdings geographically: ETFS Physical Swiss Gold Shares (SGOL) stores its gold in Switzerland & ETFS Physical Asian Gold Shares (AGOL) stores its gold in Singapore.

{Coins & bars} can be counterfeited or the metal diluted with impurities. Unless you are a properly equipped chemist, you may never know the difference. Sprott Physical Gold Trust, PHYS,is a closed-end fund that can trade at a significant premium or discount.

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* {The gain by selling unbacked certificates is huge. This has been done for centuries, but current audits make it harder. Un. of Texas feared this a few months back and took physical delivery - billions of dollars of it endowment it had in gold ETFs, as I recall}

 

[eyeswideshut]

With a longer view this drop is not bad.

I´m in metals in a small scale and been hoping that prices would come down so that I can buy more. Like Jim Rogers said; if it goes to parabolic move its going to be end of the bull run and I hope I´m wise enough to sell it at the right time.

Without this correction it would have been parabolic move, so I agree to what you said.
Very informative post again Billy, thanks.
And I buy my metals physical.

And by the way good post quantum wave. French/Belgium bank Dexia went just under, the dominos start to fall in Euro zone.

 

[nirakar]

I don't like gold because it's price is not based on commercial demand but rather is based on desire for a safe currency. That being said this decline in Gold was manipulated, fake and won't be maintained.

Gold will crack $2,000 within the next 3 years, Gold will crack $3,000 within the next ten years. But after that watch out Gold Bulls because when the transformed post depression economy stabilizes Gold will crash back to it's inflation adjusted historic norm which is much lower than the current price.

This is a good time to buy Gold but don't he holding Gold when a sustainable global economic order appears.

 

[eyeswideshut]

For the reasons you mentioned I prefer more golds "crazy little brother" - silver.
And its much cheaper too. But I watch gold as its set the tune.
Wildest forecast that I have seen for gold - 15k $

 

[Billy T]

I don't like gold because it's price is not based on commercial demand but rather is based on desire for a safe currency. ...

And here is larger part of why:

At least 43 countries from every corner of the globe pumped massive amounts of money into the global economy. Here are a few of the stimulus plans (as measured in U.S. dollars):
United States: $787 billion
China: $585.6 billion
Indonesia: $75 billion
Japan: $687 billion
Germany: $68 billion
Macau: $13 billion
Great Britain: $29 billion
France: $35 billion
Singapore: $13.6 billion
Australia: $26.5 billion
Saudi Arabia: $49.6 billion
Korea: $26 billion
Canada: $43 billion
India: $6.5 billion
Vietnam: $1 billion
South Africa: $7.9 billion
Ukraine $16 billion
Israel: $5.4 billion
Russia: $20 billion

From: Inside Investing Daily <inside@insideinvestingdaily.com> Email to me today.

PS - I didn't add up the total. Was too scared of what it might be but surely that total divided by all the gold existing for sale must be a higher gold price still (Or at least explain the increase in price of gold since the central banks fired up their printing presses). Anyone willing to check what that might be?

 

[charles brough]

Now, in November, the question of whether the US and Europe are both heading into DEFLATION because of the intense focus on debt-reduction, that question is becoming answerable. We need an answer because if prices fall, a chain reaction sets in as it has in Greece, one in which the economy grows even worse and, as the tax take also declines, so the national debt grows even larger and government borrowing costs even more.

So, will Greece and the US actually cut their deficite? Well, consider this: the "super-committe" cannot agree to a plan, so an automatic spending cut will be expected in 2013. That gives Congress a lot of time to change that. It is, after all, a common practice. We have often "kicked the can down the road" rather than deal with it. Who ever is elected President and which Party rules Congress will most certainly put off or eleminate a delayed law that will "strip our national defenses."

So, from a position where we are already subsidizing the cost of our coins and unable to control expenses, there is nothing else on the horizon other than gradually rising prices.

Gold and silver look good to me.

 

[Billy T]

Quoting from article: "the Germans want their gold back because there are very real questions about whether the U.S. still has it."

The Bundesbank's overall reserves of 3,400 tons are worth about $200 billion at current market rates. The central bank now plans to bring back to Germany some of the 1,500 tons of gold stored in the vaults of the Federal Reserve in New York, and all of the 450 tons currently stashed with the Bank of France in Paris.

Most of Germany's reserves have been stored abroad since the Cold War over fears of a Soviet invasion. But the central bank came under pressure last year when Germany's independent Federal Auditors' Office concluded it failed to properly oversee its gold reserves. The auditor suggested the central bank should carry out regular inspections of the gold held abroad to verify its book value or change the reserves' management.

The very fact that it is calling in its gold is monumental in terms of questioning the “full faith and credit” of the United States Treasury. ... There is a limited amount of gold in the world. It is finite. When France, China, Russia, India, Chile, Israel, and Japan call in their gold, there will be a public failure to produce the goods.

Which central bank will wait to be last? The Germans just made the first move in a global central bank-fueled bank run on gold... This could end badly.

 

[Billy T]

Quite possibly a run on central banks, like the US´s Fed, which claim to hold large volumes of gold.

Austria currently has 56% of its foreign exchange reserves in gold. If Austria is still leasing 30% of its gold reserves this means its foreign exchange reserves are 16.8% less, because of one cannot both lease and sell the same asset at the same time; although these days a central bank might be open to anything!

Again, reason it will take seven years for Germany to get is US stored gold back, may well be the US, like Austria, has leased the gold out to others to off set storage cost.

The text of the above link starts with data that that the Austrian Parliament pried out of the Austrian Central bank and has solid data /analysis to conclude as in above quote. US Congress (especially Ron Paul) has not been able to get anything but "verbal assurances" during the last 60 years that the gold claimed to be in Fort Knox is there and owned as stated; but ever since the middle ages when rich people with vaults stored gold for others, the trend has been to issue more bearer certificates than there was gold in the vault to earn more in storage fees.

It seems "Don´t ask - Don´t tell" is still the Fed´s policy about gold at Fort Knox.