what is up (down) with gold

for the last few days gold has been droping almost 50 points every day what do you guys think will happen to the gold prices.

 

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It will go back up.

 

how do u know

 

Here is my guess [nobody knows for certain]...

Markets generally seem to do whatever it takes to lose the most money for the most people over time. This happened in the late 90s when the tech stock bubble "trained" investors to buy the dips. And this worked very well right up until the day when it stopped working. And all of those trained to buy the dips poured money into a sinking NASDAQ market. Many were wiped out. Fast forward until today. The latest gold drop will be seen by many as a repeat of 2008 when gold fell and recovered strongly. They will probably be proved correct. The market is teaching gold investors to buy the dips and not to sell. This will be a very profitable approach and everyone will be very pleased with their astute investing by not panicing with the crowd. Then, maybe next time or the time after that, gold will plunge again. People will hold on and buy more, and prices will continue to drop all the way back to the cost of production -- and stay there for years. That's how I see this movie playing out and ending. It's a tragedy, not a comedy.

 

thats a good thought so what you are saying is that "they" are trying to teach us not to destroy the stock market by selling when very high

 

Not quite. There is no "they." Nobody decides or manipulates it. It's just the way markets and human nature combine so that the largest amount of money frequently pours into an investment just around the time the bull market for that asset class is coming to an end. It happened with stocks. It happened with real estate. And it's a good bet [but by no means certain] that it will also happen with gold. Almost nobody will have the mental dicipline to sell all of their gold when it is rising sharply. And if it takes a dip, people tend to either (1) wait until it goes back up before they sell, or (2) buy more. So when the bull market ends, most investors will go down with the ship.

 

Implicate Theory.

(You can also do a search on my posts on why I think gold is a good place to park money at this time.)

 

I would be more inclined to agree with you if I wasn't watching the physical market dry up in front of my eyes. The NASDAQ is not a representation of a commodity that you can get in real life. It's a representation of the value of a business. Businesses can go to zero. Precious metals cannot. That's not to say we haven't seen the top already and that people could be throwing good money after the bad, but it seems like comparing apples to oranges.

 

In my unprofessional opinion we are looking at the new bottom and this strong volatility bodes well for future gains. If it can go up that fast to $1900, it can go down just as fast, and it has. The velocity of the volatility means that the probability of reaching a new level has increased.

 

Well, there's always a reason why people believe that "this time it's different" with every bull market. But in the end, it never is. Metals can't go to zero, but they can go down 70%, and the holders won't feel very good about that outcome either.

 

And also such volatility means that the CME and other exchanges will protect their market by hammering the margins until the volatility and Price of gold will be back down again.

All of the bullion buyers seem to say ( paraphrased) "I am in for the long term" or something similar. So they should want a long slow rise with associated low volatility to maintain a bull market with no margin changes. The margin changes come from increased volatility up or down, not from the eventual price reached. $1900+ before March should be a sign to sell long and hardy and wait for the result unless there is war in Europe or Asia or other extreme event. IMO.

Jim

 

Or they run off their customers. There are limits to how much hammering they can do as they don't make money if there is no one trading on their exchanges. There are other places to buy and sell paper gold. Meanwhile long buyers will continue to stock up on the metal and use this as an opportunity to acquire more at lower fiat cost.

 

I would suggest that the exchange officials are more concerned with the integrity of the market for legitimate hedging than they are for the volume of trading. In the long run it is the reputation of the market and avoidance of technical defaults that is the major concern.

 

Buy corn!

 

Technically, it's different every time, but I would agree that's not an excuse to ignore conventional wisdom. The thing about this bull market is that every reason that prompted me to buy silver at $10 is just as valid today, if not more so. The money supply is expanding exponentially, and so is the debt. Gold and silver are just reflecting this relationship. Anything can go down 70%, but not many things besides precious metals will protect against dollar devaluation, and the dollar must continue to be devalued in order to avoid default.

If the goal is to decrease volatility, why have we had two $5 moves for silver in a single day since then? In the last 24 hours there has been another $4 swing. If they need to suppress the metals market to stabilize the rest of the market, that doesn't bode well for their ability to keep things under control. Even the DOW today is up a couple hundred points. This is just more volatility. As I see it these margin hikes are for price control, not stability. If you hold a beachball under water, adding more weight to it doesn't make it more stable. Allowing it to reach equilibrium without coersion would be the way to achieve stability.

 

It always looks different, but it never is because human nature never changes. I'll be that in the spring of 2000 when the NASDAQ was in decline someone somewhere posted "The thing about this bull market is that every reason that prompted me to buy tech stocks at $XX is just as valid today, if not more so."

 

Except this isn't the case with silver. They printed money for two straight years QE1 & QE2 before silver even budged.

 

Um, QE1 began in 2008 at the bottom of the market crash, which is exactly when silver started its massive leg up. The data disagrees with you.

 

Well I am just splitting hairs in that each situation has unique factors. Another fundamental difference however is that people own stocks with the intention of selling them at a higher price one day. I keep buying silver because I have every intention of not selling it, because I don't want dollars that will eventually be worthless. That's not to say I might not take a small profit at some point if I'm able to, but that is not my motivation. I was a bit green during the tech bubble, but I did work for a free internet provider at the time, and I was able to see first hand long in advance how people were throwing money into a failed business model. PM's don't have a business model that can succeed or fail.

 

The only reason I brought this up is because there is no fool-proof investment over the long run. Even gold and silver can go a very long time without returning the original cost to the investor. If a long term investor bought gold at $400 in the early 80s [not a terrible price at the time], their rate of return to today would only be about 2% annually - pretax. Just about any other investment would have done better. And monetary conditions in the early 80s looked just as bad if not worse than they do today. So at least a minimal amount of attention to timing can help a lot.