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Isn't gold supposed to go up at times like these?


Liberty
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Hedge funds, which have been ratcheting down their positions in gold futures since early August, were quickly named as the culprits in the latest sell-off.

 

Some traders said that hedge funds were beginning to unwind, or close out, what has been a very popular and profitable trade for the last 18 months as they bet the dollar would fall and that gold would rise. In the last month alone, the euro has fallen nearly 4 percent against the dollar amid worries about the European debt crisis.

 

http://nyti.ms/r51iWh

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I've been reading into this.

 

The global flight to treasuries results in an increasing dollar, gold is priced in dollars.  Also, apparently a number of large hedge funds are selling their shares in gold, this could be from forced selling to cover losses as this is likely a major source of positive gains.  This pattern isn't unusual actually, Gold usually initially drops then recovers due to the aforementioned factors.  In my mind gold is still not a short candidate.

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Gold acted the same during the 2008 meltdown so this should not be surprising. A commonly given explanation is that people sell what they can (i.e. stuff you own that hasn't been hammered) when they get margin calls. Sounds plausible enough but who really knows.

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Let me have a shot. It appears that Europe is going to have a hard landing the appearance is based upon the fact that no one is going to stand up and say follow me boys and girls this is the way to salvation. The plan right now seems to be every country for itself as far as saving banks are concerned and we will all chip in to save the ECB which is bancrupt as well. Some banks are going to fail but depositers will be made whole not so sure about shareholders and creditors however. In that scenario which we can describe as the heck no we ain't going to print our way out of this mess some dough gets destroyed and real losses are incurred. Some of the gold which is on nations balance sheets might start finding itself onto the market I think this is just some people front running the banks selling cuz some of these countries are only going to be able to raise dough by selling gold or gold backed securities.  If this is in fact the path then some of the gold bugs are going to be disappointed because they have been daring Bernanke to do QE3 and expecting the Europeans to do their very own version of the same. I believe the gold Dow ratio reached the 2nd highest monthly level it has reached in the last 100 years or so and I have said here more than once we do not get a sustainable bull mkt in equities as long as we have a bull mkt in precious metals. I was not short gold or silver on this self off but I thought that was where the greatest risk was. There is also a huge amount of trend following dough in the precious metal trade and well, you do not need an advanced charting designation to see that the trend is no longer left to right and inexorably upward.

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When gold goes up, it's because everyone is increasingly realizing that it's the only true money.

 

When gold goes down, it's because everyone is increasingly realizing that dollars are the only true money.

 

There, I explained it for you.

 

 

Haha, that sounds about right...

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I think everybody's comments are right on this thread so far: could be defaults in Europe, US dollar strong, etc...but I don't think I would short precious metals here, I still think they should outperform other asset classes in this kind of environment and should begin to strengthen relative to the stock market.

 

"When gold goes up, it's because everyone is increasingly realizing that it's the only true money.

 

When gold goes down, it's because everyone is increasingly realizing that dollars are the only true money.

 

There, I explained it for you."

 

This is exactly it, and the question is which one will it be in the end? A strong dollar or high gold prices? I don't know the answer to that one. If someone knows for sure, let me in on the secret. In the meantime, I am betting both ways.

 

Silver had its biggest 2 day drop since 1983 and biggest one day drop apparently since 1979 today according to a Bloomberg article. I decided that I should buy a bit more silver. Ultimately, I think governments are probably going to have to triple the price level to cut the debt by 2/3rds and gold and silver will triple fundamentally and then there will be a pile on effect and they may go up 4 to 5 fold. This may unfold in a very short period of time - say 12 months. Until then, its going to look like we are heading into deflation and debt destruction with increasing amounts of volatility in the markets and this could last for some time - years? I think one thing we can count on is significant volatility as this system seeks to work its way through to stability (ie stability meaning lower debt relative to GDP whether via debt destruction or massive inflation).

 

 

 

 

 

 

 

 

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