Best of the Week
Most Popular
1.The Greatest Stock Market Crash Of Your Life Is Just Ahead… – Warns Harry Dent - GoldCore
2.Budget 2016: Borrowing, Lifetime ISA, House Prices, Economy, Syria, Brexit and Stocks - Nadeem_Walayat
3.Gold Price Intermediate Top - Clive_Maund
4.Brussels Terror Attacks, Death of the European Union, BrExit Wake up Call - Nadeem_Walayat
5.Stock Market Maybe This Time is Different? - Tony_Caldaro
6.UK House Asking Prices Break Above £300k! Housing Market Paralysis - Nadeem_Walayat
7.A Big Reason Why Silver Price Is Set To Soar - Hubert_Moolman
8.The Financial Crisis Has Just Begun; Is The American Dream Is Over? - Chris_Vermeulen
9.Gold Stocks Spring Rally - Zeal_LLC
10.GLX, GLDX, Baby Gold Bull Market Stillborn? - Rambus_Chartology
Last 7 days
When the Truth is Found to be Lies, Confidence in Currency Dies - 2nd May 16
How Brexit Could Help All of Europe - 2nd May 16
US House Prices Outpacing Official Inflation Rate, Household Income - 2nd May 16
USD Still Declining... - 2nd May 16
Gold & Silver Rally Huge as Central Bankers & Analysts Flub - 2nd May 16
Stock Market Bounce Day - 2nd May 16
Stock Market Uncertainty Following Two-Month Long Rally - Will It Continue? - 2nd May 16
Stock Market Correction Underway "Upside Objective Reached" - 2nd May 16
USD, Yen and an ‘Inflation Trade’ Update - 2nd May 16
Gold Commitments of Traders and More - 1st May 16
The Magic of Gold Ratio Charts - 1st May 16
Consensus Forming: China Heading Back Into Financial Crisis - 30th Apr 16
The Next Technical Price Targets for Gold & Silver - 30th Apr 16
Stock Market Downtrend Should be Underway - 30th Apr 16
Gold And Silver – A Clarion Alarm Call For All Paper Assets - 30th Apr 16
US Economic Statistics LIES, LIES AND OMG, MORE LIES - 30th Apr 16
Stock Market Strong Elliott Wave Relationship is Developing - 29th Apr 16
Fed's Kaplan: Brexit to Factor in US June Interest Rate Decision - 29th Apr 16
Silver Miners Strong in Grim Q4 - 29th Apr 16
Is Silver a better bet than Gold in the Near Future? - 29th Apr 16
How to Use the CoT Report in Gold Investing? - 29th Apr 16
Sri Lanka is Intriguing: Areas to Consider for Value Investing - 29th Apr 16
Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards - 29th Apr 16
Are We or Are We Not in a New Gold Bull Market? - 29th Apr 16
Silver: The “Five Year Plan” and the Great Leap Forward - 28th Apr 16
Michael Hudson: The Wall Street Economy Has Taken Over The Economy and Is Draining It! - 28th Apr 16
AUD/USD - Trend Reversal or Just a Bigger Pullback? - 28th Apr 16
A Gold Revaluation Could Transform Your Financial Status - Overnight - 28th Apr 16
Monetary Policies Misunderstood - 28th Apr 16
Gold Bullion vs Gold Miners - 28th Apr 16
OECD Suggests BrExit Would Cut Net Migration by 1.2 Million by 2030 - 28th Apr 16
MP Naz Shah Punished for Tweets Made During Israel's Genocide of Gaza Palestinian People - 28th Apr 16
Global Recession in 2016 and Beyond - The Obvious Evidence - 27th Apr 16
Why Gold Bugs Need to Stop Listening to The Fear Mongers and Start Thinking for a Change - 27th Apr 16
BlackRock’s Fink: Fed to Raise Interest Rates by Quarter Point ‘at Best’ - 27th Apr 16
Gold More Productive Than Cash?! - 27th Apr 16
Donald Trump Will Fire Janet Yellen and Be Trapped - 27th Apr 16
Money Saving Gardening by Propagating Roses From Cuttings - Propagating Rose Plants Over 2.5 Years - 27th Apr 16
Facebook Censors Pro Trump and Negative Hillary News - 27th Apr 16
This is the Era of the Democrats and Your Taxes are Going Up - 27th Apr 16
Long Awaited Gold Price Breakout - 26th Apr 16
Crude Oil Price Double Top or Further Rally? - 26th Apr 16
Madness in the Crimex Gold and Silver Trading Pits - 26th Apr 16
Britain's Prospects: GBP and BREXIT - MAP Wave Analysis - 26th Apr 16
CRB, Gold, Oil, Cotton, Coffee - 7 Must See Commodities Charts - 26th Apr 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Catching a Falling Financial Knife

Everything You Need to Know About Gold Prices

Commodities / Gold and Silver 2012 May 11, 2012 - 11:24 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleKeith Fitz-Gerald writes: Gold's hot. Then it's not. Now what?

Where did the love for the shiny metal go?

Now the gold bugs are crying, and the "I told you so crowd" is warming up in the wings.


After a stunning rally to $1,895/oz., gold prices are down hard, falling below $1,600/oz. That's a 16.11% drop that has the gold bears drooling for more-but probably not for long.

Let's start with gold prices themselves. Right now they're down three months in a row and many gold investors fear there's no bottom in sight.

What they don't realize is that the fall in gold prices is as rare as proverbial hen's teeth. This is the first time we've seen gold prices tumble three months in a row since March of 2001.

In fact, since 1957 we've only seen gold prices fall three months in a row 65 times out of a total of 661 three-month periods, according to data compiled by Bloomberg and Standard and Poor's.

But here's the thing about gold prices...

Gold could fall all the way through May, turning what it already a rare occurrence into an ultra-rare occurrence.

Would that be a bad thing? In the bigger scheme of things, not really.

People forget that gold prices fell by more than half from 1975 to 1976, and were down 17 out of 24 months. At the same time, gold prices also recorded 10 three-month declines during the period.

That was, incidentally, right before gold rose 721.25% to $850.00/oz.-- a peak gold hit on January 21, 1980.

The point is, bear tracks always precede bull market runs. So I am not especially concerned by this pullback in gold.

In fact, as you can see from an earlier forecast, we're right on target with my expectations for gold this year.

Take a look at what I shared with my readers on January 2, 2012:

The drop in prices we're seeing is simply a matter of traders adjusting their risk tolerance by taking money off the table. They are moving out of gold and into dollars.

Gold Prices Are Driven by the "Smart Money"
Not surprisingly, Greece is the biggest single factor behind the move. Traders are concerned that the nation will summarily go its own way, shatter the EU's bailout and potentially sink the euro itself.

Next week the worries may be something entirely different. You just never know how these events are going to unfold in the short term. I sure don't.

I believe gold prices will fall further. Traders still haven't totally priced in the costs of an EU flameout, nor have they begun to liquidate positions to raise the necessary capital to meet redemption requests you just know are waiting in the wings.

Don't forget that gold is now a marginable asset. It is also one of the most liquid assets on the planet if you factor in derivatives like futures and options - many of which form the basis for sophisticated stock trading models because they indirectly dictate the amount of risk a trader can or cannot take.

In other words, gold is driven by "smart money" - meaning those with the scope and scale to move markets -- even if it's not all that smart.

As Western currencies decline and emerging economies continue to "buy" value outside the U.S. dollar, international demand for physical gold is more likely to increase than decrease.

China is the most aggressive of these foreign buyers, accumulating an average of 45 more tons per month over the last eight months than the prior eight, according to Eric Sprott, CEO of Sprott Asset Management.

You can guess what kind of effect this is going to have on gold prices as easily as I can.

Other nations have a more indirect impact. Iran, for example, is planning to sell oil to China for gold as U.S. sanctions take effect. Brazil and Russia are both hinting at a move towards some sort of physically-backed currency basket in lieu of the dollar as an international backbone. And India recently retracted a gold tax that paves the way for broader gold ownership.

Just as it is with other forms of investments, capital is shifting from the nanny states of the West to the growth-backed economies of the Far East.

The sovereign debt crisis still burning in Europe will only accelerate this process, especially as major financial hubs transition trading activity to emerging and newly regulated exchanges like Shanghai.

Then there's France and newly elected President Francois Hollande, whose tax-and-spend policies are perhaps the biggest single potential influence on gold prices on the planet at the moment.

Think about it.

The EU is going up in flames and Hollande wants absolutely nothing to do with austerity. In fact, he's likely to abandon it entirely. That speaks to more stimulus and more bailouts.

European central bankers suggest this is necessary to drive growth. But last time I looked this was political speak for "imprimer de l'argent," or printing money.

And printing money by its very definition is inflationary.

Don't Lose Your Love for Gold
That means institutions and individuals alike are going to be looking for hard assets as a means of preserving their wealth. Once the headlines die down they will again turn to gold.

"So do I buy in?"

I get that question all the time and my answer remains the same. It depends on your expectations and your time frame:

•If you're a short-term trader prone to timing-based decisions, I advocate buying into weakness over a period of months, especially now that gold has broken under $1,600 for the first time since December 30th and we've seen the first close under $1,600 this year. If it busts $1,500/oz., backing up the truck for gold is probably a pretty good idea. At $1,300 it's time to load up.
•If you believe, like I do, that global demand will ultimately override short-term gyrations, making measured investments is the way to go in the meantime. That could include, for instance, increasing allocations to bullion, gold certificates, coins or ETFs as the price drops. Just as you want to sell into strength, you want to buy into weakness, especially when so many people are looking the other way.
At the end of the day, there's no rocket science to this.

The gold industry produces just 2,500-2,800 tons a year, depending on various data sources. Eric Sprott notes that if you take China and Russia out of the picture by removing the 500 or so tons they produce, it leaves approximately 2,200 tons for the rest of the market.

And I agree.

Imagine what happens when somebody wants an extra 500 tons. It's highly unlikely they'll be able to buy it without moving prices...higher.

[Editor's Note: Keith's Geiger Index continues to deliver for his subscribers. The track record on this one is amazing. Since inception, 64 of his 67 recommendations have been winners.

And looking at the big picture here, things are just getting started...

Once you see Keith's "secret weapon," you'll understand why. To learn more about the Geiger Index click here.]

Source :http://moneymorning.com/2012/05/11/everything-you-need-to-know-about-gold-prices/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife