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dkang76
09-27-2011, 06:17 PM
"What Happened to Gold?
By Dan Steinhart

Precious metals are experiencing a correction that may spook even the staunchest gold bug. Gold has fallen 16% in under one month, which already bests its average correction since 2001 of 12.8%. Even so, gold has quite a way to go to match its largest decline during this period, a 27.7% plummet in the latter half of 2008. A decline of that magnitude this time around would send gold down to $1,370, where it last was on February 16 of this year.

Silver, gold's more volatile kin, has been nearly chopped in half since its peak, registering a 48% decline. It would only need to fall another 6% to reach its largest decline since 2001 of -53.9%.

All of this begs the question: What the heck happened? Let's take a look at some of the more popular reasons, real and imagined, being discussed in the media.

Margin Hikes
On Friday September 23, the Chicago Mercantile Exchange announced a 21% margin hike for gold and a 16% margin hike for silver. On Monday, the Shanghai Gold Exchange followed up with a 20% silver margin hike of its own. Margin hikes effectively require that any traders leveraged past the new limit must liquidate enough of their positions to meet the stricter requirement. They equally affect longs and shorts, but with the amazing runs gold and silver have had over the past decade, it's safe to assume there were more leveraged longs than shorts in precious metals, meaning the margin hikes applied downward price pressure.

Conclusion: It's likely that margin hikes played a part in gold's rapid decent.

Disappointment with Bernanke's Announcement
When the Fed announced on September 21 that it will purchase $400 billion of long-dated Treasuries by selling the same amount of short-dated Treasuries, the markets were largely disappointed. We can hardly blame them; by now, we're all used to "Helicopter Ben" stepping up to the podium and promising to shower us with new money. Not so this time around. Instead, he gave us "Operation Twist," which by itself is balance-sheet neutral, meaning the Fed isn't pumping in any extra liquidity.

So speculators who were long precious metals and expecting to Bernanke to announce QE3 were left wanting. Prior to the announcement, buyers bid up the price of precious metals and "baked in" money growth to precious metals prices. When the money growth didn't come, the premature appreciation unwound, sending silver and gold spiraling downward.

Conclusion: Bernanke's temporary restraint definitely contributed to gold's sharp correction.

Hedge Funds
September 30 marks the end of the third quarter for hedge funds reporting on a calendar year basis. Funds often liquidate positions prior to quarter-end for various reasons, including raising cash and upping performance fees. Combine this normal quarter-end activity with the rampant market fear toward the end of September, and we have a solid rationale for the move out of investments and into cash.

But why would this disproportionately affect precious metals? Well, when fear hits and margin requirements come knocking at the door, investors will often first sell their biggest winners to realize a profit. Silver and gold have been two of the biggest winners of late, and so were natural candidates for profit-taking during this latest market meltdown.

Conclusion: Hedge fund activity likely played a significant role in gold's pullback.

The Bubble Finally Popped
A bubble means prices of an asset class are unsustainably high for speculative reasons. The reasons why gold is high are neither unsustainable nor speculative: The world's developed economies are still crushed by debt; central banks the world over continue to print money; and numerous regulations continue to be a serious drag on economic expansion. None of that has changed over the past month, and the political will needed to fix these dire conditions remains nonexistent.

Any conclusion that gold is in a bubble is entirely superficial and likely doesn't involve much more thought than looking at a gold chart and observing that it's gone up for a long time, so it must be in a bubble. Anyone with a serious understanding of gold's monetary properties and the world's economic woes shouldn't lend any credence to the bubble theory. Gold may well yet reach a bubble stage, but we are certainly not there yet.

Conclusion: Gold is not in a bubble.

The Dollar Is a Safe Haven
Despite the inescapable reality that the dollar is being systematically debased, investors the world over continue to flock to it as a safe haven in times of uncertainty. The dollar is still the world's reserve currency, and as long as the perception remains that it is a stable store of wealth, it will continue to function as a beacon of safety.

Consequently, when investors rush back into the dollar, the price of gold in dollar terms is pushed down. So even though we here at Casey Research view gold as the ultimate insurance policy, most other investors still bestow this status on the undeserving dollar. Until that perception changes, flights to dollar safety will produce gold price drops.

Conclusion: The dollar's reputation for safety absolutely dragged down the price of gold in late September.

Overall, the recent sharp correction in gold was undoubtedly caused by several factors, including the ones above. Fortunately for us gold investors, all of those factors have one common characteristic: They have nothing to do with underlying fundamentals. Debt is still crushing the developed world, and money printing is still the favored solution; as long as this dismal reality remains true, gold will continue to rise.

While short-term gold prices can swing because of such factors as margin calls and quarter ends, in the long run these factors are inconsequential. The secular bull market we've been experiencing in precious metals for a decade remains firmly intact."

im glad i can buy lower. i say wait little more for lower price. :)

catfishman
09-27-2011, 06:30 PM
a very beneficial analysis, and encouraging word.
thank you very much;)

Stewie
09-27-2011, 06:51 PM
The Dollar Is a Safe Haven
Despite the inescapable reality that the dollar is being systematically debased, investors the world over continue to flock to it as a safe haven in times of uncertainty. The dollar is still the world's reserve currency, and as long as the perception remains that it is a stable store of wealth, it will continue to function as a beacon of safety.


Highlighted in bold above.
The factor being overlooked in this argument is that the dollar = oil.

This is never factored into the equation as to why the dollar is considered a safe haven.
It is the ONLY reason that the dollar IS considered a safe haven.

After all , it is the Petro Dollar.
The billionaires and multi billionaires all know this.
This is why they flock to the dollar. They know governments will flock to the dollar for the same reason.

Without dollars, countries with failing currencies cannot buy oil.
This is why they flock to the dollar before any further devaluation of their own currency.

The answer is OIL.

blue edwards
09-27-2011, 07:50 PM
Highlighted in bold above.
The factor being overlooked in this argument is that the dollar = oil.

This is never factored into the equation as to why the dollar is considered a safe haven.
It is the ONLY reason that the dollar IS considered a safe haven.

After all , it is the Petro Dollar.
The billionaires and multi billionaires all know this.
This is why they flock to the dollar. They know governments will flock to the dollar for the same reason.

Without dollars, countries with failing currencies cannot buy oil.
This is why they flock to the dollar before any further devaluation of their own currency.

The answer is OIL.

great point. why does no one ever talk about this?

Crazyness
09-27-2011, 08:01 PM
Do you guys think silver will drop back down to 26/28 if more bad news of the eurozone come out?

Stewie
09-27-2011, 08:04 PM
great point. why does no one ever talk about this?


Because it bucks the belief that the dollar is not backed by anything.
The dollar is backed by something. That something is Oil.
Richard Nixon took us off the gold standard, then put us on the oil standard.

The problem with the petro dollar is OPEC has talked about doing away with it.

When that happens, KABOOM! That's not an explosion , by the way. It's an implosion.

That's when all the dollars rush back to the united states.
Because no one wants them.
And therein , my friend, is your main hyper-inflationary/mad max scenario.
I would fear that more than deflation.

Which is why I hold metals. One of the many reasons.

dkang76
09-27-2011, 08:23 PM
u will see 26 silver and 1530 gold. maybe lower 23 and 1435.

blue edwards
09-27-2011, 08:30 PM
u will see 26 silver and 1530 gold. maybe lower 23 and 1435.

what makes you so sure?

yellowsnow
09-27-2011, 08:37 PM
Because it bucks the belief that the dollar is not backed by anything.
The dollar is backed by something. That something is Oil.
Richard Nixon took us off the gold standard, then put us on the oil standard.

The problem with the petro dollar is OPEC has talked about doing away with it.

When that happens, KABOOM! That's not an explosion , by the way. It's an implosion.

That's when all the dollars rush back to the united states.
Because no one wants them.
And therein , my friend, is your main hyper-inflationary/mad max scenario.
I would fear that more than deflation.

Which is why I hold metals. One of the many reasons.
yup, that's is why US invaded iraq, afghanistan and now librya
but not other axis of evil like north korea, iran(it's in the radar), venezuela

Stewie
09-27-2011, 08:37 PM
u will see 26 silver and 1530 gold. maybe lower 23 and 1435.


You don't know that.
You cannot sit here and tell me or anyone else that you or anyone else knows the exact future of the market.

Did your buddy call the margin hikes too?
You know......the margin hikes that complicated the sell off?

I'll answer that for you. NO.
No one called the margin hikes. Yet many sit on this forum about how " oh bla bla so and so called this sell off" bow down.

Sell offs always happen when margins are hiked. It's normal and we've seen it over and over again this year.
How many people called ANY of the margin hikes?

NONE. 0

dkang76
09-27-2011, 08:49 PM
well your gonna have to be bull or bear. im bear for now. im saying i will see it go lower and thats when ill buy. cuz when everyone was saying gold and silver is gonna explode when gold was 1900, well i knew this day was coming. they said that was non-sense back then.
its time for correction and we aint done yet.
i could be wrong of course. but thats the side im picking.

HoardeBilly
09-27-2011, 09:40 PM
Gotta pick a side. Ok.
Long Bull on gold. Short Bear dollars and all paper.

radioone
09-27-2011, 10:32 PM
Told ya all months ago that silver would go to 27.27....... Took longer than I thought it might, and we overshot that for a brief few moments....... But again, patience has rewarded R1 again....... Damn this is tooooooooooooo easy....... ;)

yellowflavour
09-28-2011, 10:28 AM
dkang76, thank you for spending time to educate us. in my circle of people i would be considered the most serious of all in gold. some people just dont get it... how many years of banging into a wall...dont wont get it.:mad:

dkang76
09-28-2011, 01:26 PM
well looks like its gonna correct some more... still waiting~

MorganPSLV
09-28-2011, 01:33 PM
problem is, if paper spot gets to the low range of POS, would there be any physical silver to buy or the rise in premium chew up the extra drop in POS.