Gold Set To Plummet?

Is gold set to fall to ~$1300? A question most are quick to smash with a resounding “no” may be worth pondering in light of some interesting arguments. After all, no bull run is eternal and with so much cash flowing into gold even one sell off by a major holder could dramatically affect prices.


Through the 2008 credit crisis and recession as well as in its aftermath, financial markets have been ruled by broad-based swings in investor sentiment. The leading asset classes separated into two distinct and opposing camps: one associated with optimism in a recovery from the turmoil (so-called “risky assets”, referencing traders’ confidence in accepting risk in return for greater returns), the other with pessimism (“safety” or “safe-haven” assets). When investors were optimistic, “risky” assets such as stocks and the Australian dollar would rise, while “safety” assets such as US Treasury bonds and the US Dollar would fall. When investors became fearful, the opposite tended to happen. Meanwhile, gold charted its own course, pushing higher regardless of the markets’ mood. This resilience reflected the prevalence of “extreme” optimistic and pessimistic (“bullish” and “bearish”, respectively) views on the state of the global economy, both of which saw gold as an attractive store of value within their respective outlooks.

But as time goes on and things remain the same, something has to give…


Sizing up the current macroeconomic landscape, the extreme bulls and bears in the above scenarios are both proving increasingly wrong in their assessment of how the recovery did and will progress. On one hand, all of the major engines of global growth appear to be slowing. At its most recent monetary policy meeting, the Federal Reserve said the US recovery had been disappointingly slow and slashed their growth forecasts for the remainder of 2011. In China, recent data from HSBC showed that expansion in the manufacturing sector in June registered at the slowest pace since February 2009, having deteriorated for four consecutive months. An analogous gauge tracking manufacturing- and service-sector growth in the Euro Zone for the same period yielded the weakest reading in 32 months.

The looming specter of the Greek tragedy just going away and QE3 silently sneaking up may give many a reason to rethink their generally bullish stance on precious metals. The ETF sell-off argument looks stronger than ever and if we are indeed following the patterns of early 80’s stagflation, the key question becomes…not if to short gold, but when.

 

I am Viserys Targaryen, son of King Aerys II Taragaryen, and I have leveraged all of the future earnings of the Seven Kingdoms during my reign to go long on gold.

Fuck the boy king...

It is better to be vaguely right than exactly wrong - JMK
 

Every argument I've heard either way makes sense, and I have no idea what gold is going to do. My GUESS is that there will be a shakeout sometime at the end of the summer, but the prices will continue to hold. What happens after that and when......I just can't get a read on it.

Get busy living
 

I don't think we'll have a shakeout like we did with SILVER maybe a 100-200$ shakeout, but only to scare out the weak hands.

Countries are printing more money : More money = less value to the money = GOLD goes up.

I think we ain't seen nothing yet... time will tell!

P.S. Gold hitting records almost daily.. it's at $1619 right now..

 

OK, I'm gona get a real response in here.

I've invested a lot of money in gold an silver futures over the past year and I've seen a few things. The most obvious one being that silver is manipulated like crazy. I remember being in the library watching Obama's press conference about killing Osama and checking the silver spot price. It went down 11% in about 12 minutes. JP Morgan holds vast amounts in their COMEX-regulated vaults. And COMEX has the least amount of deliverable silver ever. THis is both bearish and bullish on silver. There are fundamental needs for silver out there- as it is used in almost everything- while there is none for gold. But since silver is a market that CAN be cornered (a la Hunt Brothers attempt) it is more volatile and more dangerous. The gold market is huge but has no underlying fundamentals. It is simply seen as a safe haven investment. No matter what a QE3 will make the prices of them rise. Look at before QE2, silver was at like $17. Now... around $40. I don't think that they are priced in too much so if QE3 never comes, the prices probably will not fall. I think that gold has a good upside potential to say $1800 by Nov/Dec. Silver not as much (resistance around (42.50-43), simply by trends/TA. The thing that could kill them or serve as a catalyst is the debt deal. If they SIGNIFICANTLY reduce the debt (>4tn, debt ceiling past 2013) then PMs will get raped. More than likely though the debt deal will be much smaller, have a temporary debt ceiling increase. Importantly this will probably result in the US debt being downgraded to AA- as Moody's said that was the outcome unless we did what I said before. So overall, I'm bullish.

Reality hits you hard, bro...
 

I have never understood how gold is deemed the arbiter of economics. The value of all shares of companies involved in producing gold and gold ETFs is around 500 billion dollars; utterly dwarfed by markets for oil, natural gas and other important and substantive commodities.

I completely and utterly disagree with MMBinC, I think we are due for a sharp downward correction in gold prices. Gold's main allure among retail investors is that is strenthening against the dollar and oil. If we get a substantive deal for reducing the deficit and not raising taxes the dollar would strengthen, sharply and gold would drop like a rock. Also, if China's housing bubble bursts like I think it will, we will see a massive flight to the dollar.

Everyone is afraid of the dollar and I have had some pretty interesting conversations with people about how their funds are moving out of dollars and into gold, etc. Any sharp correction will lead people back to holding treasuries and the dollar.

I have looked into buying insurance policies and credit default swaps on bonds backed by the revenues by gold companies.

I am not cocky, I am confident, and when you tell me I am the best it is a compliment. -Styles P
 
eokpar02:
I completely and utterly disagree with MMBinC, I think we are due for a sharp downward correction in gold prices. Gold's main allure among retail investors is that is strenthening against the dollar and oil. If we get a substantive deal for reducing the deficit and not raising taxes the dollar would strengthen, sharply and gold would drop like a rock. Also, if China's housing bubble bursts like I think it will, we will see a massive flight to the dollar.

But there is the difference. I think we will be downgraded almost no matter what. S&P warned that a downgrade would occur even if a debt deal was reached if it wan't substantial. i.e. over $4tn in deficit reductions. It's gonna happen if the Republicans capitulate to the Democrats. Hopefully the Dems crack and the Republicans get their stuff through or else the U.S. will get downgraded. If that happens hopefully we can do a Canada/NYC and climb back.

Reality hits you hard, bro...
 
eokpar02:
I have never understood how gold is deemed the arbiter of economics.
5000 +/- years of history?
eokpar02:
Any sharp correction will lead people back to holding treasuries and the dollar. .
200 +/- years of genius!!!
Get busy living
 
UFOinsider:
eokpar02:
I have never understood how gold is deemed the arbiter of economics.
5000 +/- years of history?
eokpar02:
Any sharp correction will lead people back to holding treasuries and the dollar. .
200 +/- years of genius!!!

Haha, UFO you are a riot. I would advise you to actually research the history of gold. Gold has experienced MASSIVE devaluations during those 5000 years of history. While I would like to tell you every single time gold has lost its value, I would only need to bring up the massive devaluation that happened after Spain started mining hundreds of tons from its possessions in South America. The same happened after the British started mining West Africa.

Gold has only been a de facto currency for the affluent in Western Europe. Everywhere else, people used salt, cattle, grain, etc to buy things. The entire 5000 years of history is revisionism lead by Ron Paul and his acolytes.

I am not cocky, I am confident, and when you tell me I am the best it is a compliment. -Styles P
 
Best Response
eokpar02:
UFOinsider:
eokpar02:
I have never understood how gold is deemed the arbiter of economics.
5000 +/- years of history?
eokpar02:
Any sharp correction will lead people back to holding treasuries and the dollar. .
200 +/- years of genius!!!

Haha, UFO you are a riot. I would advise you to actually research the history of gold. Gold has experienced MASSIVE devaluations during those 5000 years of history. While I would like to tell you every single time gold has lost its value, I would only need to bring up the massive devaluation that happened after Spain started mining hundreds of tons from its possessions in South America. The same happened after the British started mining West Africa.

Gold has only been a de facto currency for the affluent in Western Europe. Everywhere else, people used salt, cattle, grain, etc to buy things. The entire 5000 years of history is revisionism lead by Ron Paul and his acolytes.

The Power of Gold: The History of an Obsession - Peter L. Bernstein

People hoard gold when their faith in the system is shaken: before the system, gold was the system. Fear is driving this, but also an increasing amount of greed to cash in on the bubble. The only thing I'm wondering is what the current fear / greed ratio is, as this will signal where we are in the boom/bust cycle.

Earlier in the last decade, I was hearing that gold prices wouldn't break $1,000 anytime in the forseeable future. Last year at about this time I heard the people saying the gold bubble would burst any day....and yet it continues to go up. I'm merely looking for someone to explain in a concise and accurate manner a likely three year trajectory for gold prices.

Get busy living
 

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