Why is gold dropping like a rock??
Answers
130 points
HeyJuan answered one year ago …
It would seem logical that the gold price should be rising with inflation.
My guess is that unlike the demand & supply forces driving oil prices, there may be an ample supply of gold for the existing demand. After all, the world needs a continuously increasing fuel source, but do we really need more gold?
Hopefully someone else can give you a better answer.
104 points
sobieraj answered one year ago …
Look at the fibinacci retracement #s. Gold is doing an ABC down to the 800-775 level, then it will be a great buy for an investment. AUY winner!!!
Read more from sobieraj
115 points
InvestSmart answered one year ago …
The sudden, dramatic rise in gold and gold futures prices should have signaled to many investors an inevitable decline in the near future. A 49% increase in merely 6 months was such a huge jump in such a short amount of time, it could not be justified. In a time of a recession, when investors lose confidence in equities and uncertainties about future risks increase the volatility of most fixed-income securities, investors flock to commodities as a safe haven. In addition, commodities and commodity futures move in correlation with inflation, making commodities a great inflation hedge. The recent drop in gold prices cannot be easily compared with oil, however, as they face different pricing dynamics. Whereas gold is seen as a hedge by investors, oil prices are determined much more by supply/demand. Decreases in output, and changes in expected output have much more of an effect on the movement of the price. In today's environment a high demand (dependency upon oil) mixed with a supply that is growing too slowly is causing prices to continually soar. Some believe that a decrease in the demand for oil as a result of astronomical prices is bound to affect the pricing of oil in the near future, but thats highly debatable. Back to gold: its drop can also be attributed to recent strengthening in stocks, but when we look at the direction of the market in the past few days, and the increasing rate of inflation around the world, it would not be unreasonable to suspect another climb in gold prices in the near-term.
Read more from InvestSmart
112 points
Pelley89 answered one year ago …
I've been asking myself the same question. Food and oil are fueling inflation, the market brokeout the bear crack, the USD has been left astray, the odds should be favoring gold as a hedge. Where else would you put your money? Right, oil ETFs, ultra short ETFs, ok. I wish I knew what ABC Fibonacci pattern is. However, it seems to me that the psychological resistance of $1,000.00 gold was nothing but true.
Read more from Pelley89
3963 points
MNSL answered one year ago …
It all depends on how market forces works.
Most assets are now overvalued. Same people including top investment banks who bullish in some commodities expect commodity market collapse toward 2009 and 2010 and Russian economy to go down in 2010. Some even expect imminent collapse in the commodity market.
Direction of the commodity market is very unpredictable now. Gold can go either way. You have to take bigger risk now. We must not forget there are more players in the market than those days. There are plenty of complexed derivatives and financial and commodity instruments are also in the market now.
In addition bubble has created for some commodities. Speculation has gone through the roof. For example in some countries irrespective of more supply prices are going up for some commodities now. Speculators and new players are very active in these markets.
India is gradually taking action to ban commodity trading in futures market now to control inflation. I think this is a good move because they can protect many industries.
112 points
Pelley89 answered one year ago …
That is a good point. There are more players, more financial products, more information. Gold has long been seen as the only financial asset that is nobody's liability. It does not mean that it cannot be played around with.
On the one hand, those gold ETFs, GLD for instance, have been taking the blame for pushing the price beyond 1k. On the other hand, keen technical analysts spotted the long-legged dogi candlestick testing the upper bollinger-band.
Now, it is fair to say that fundamentals are pointing towards $1,500.00 + gold. Since nothing goes up in a straight line, short-term speculators, swing-traders, jewel companies hedging their production, etc. all have a huge influence on gold fluctuation. Jewel producers in India, for example, cut down their demand as the curve was overextended. When the majority knows how to read technical charts, when trendlines and moving averages are being tested and broken, it does trigger a nice roller-coaster ride.
Sobieraj up there is another example. He's probably sitting on the sideline, waiting to get in at the 775-800 level.
4085 points
EthanR answered one year ago …
GG is currently outperforming AUY, and has been doing so handily over the last year. So when the tide turns, in my opinion, GG is the place to be. Warren B. probably knows of several others that will be good.
Read more from EthanR112 points
Pelley89 answered one year ago …
How about the Canadian Kinross, K.TO? Geopolitically secure, good cashflow. For every 1% move in the ETF, gold companies can move 4%-5%.
Read more from Pelley89122 points
userjam5987 answered one year ago …
Everything doesn't go straight up. 250-1033 is a nice run but were far from done. Gold is all tied into the dollar/Euro. Gold may bottom first week of july @ 845...805 at the worst. Those are your two major support levels. Gold will be at 1200 by end of the year and 1650 by December 2009. Thats my conservitive view. Love AUY & AEM on this next ride up!
Read more from userjam5987107 points
traderpards answered one year ago …
Could it be that most of us are focusing on things that are inflationary and that is what is wrong? I believe the reason gold's price is dropping is more because of what we are facing is <i>deflationary</i>, not inflationary. Investopedia defines 'deflation' as "A general decline in prices, often caused by a reduction in the supply of money or credit." What we really have is an ever tightening credit crisis that is putting a noose around the neck of the money supply. Banks don't want to lend any more than folks want to borrow.
So what is next? Probably oil. Let it run in a blow-off to around $150 and we'll watch the same thing happen there, sometime later this year. I'm not saying we're looking at Great Depression II but by this time next year, don't be surprised to see house prices fall another 25% and gold to be around $600. The only thing that can prevent that from happening is if Bernanke loosens the money "supply" and that isn't likely at this point because we'll end up right back here 5-6 years from now if he does.
Don't get caught up focusing on the wrong thing - everything isn't always as it seems.
