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What’s going on? If gold is the great anti-asset, the thing to hold when everything else is in collapse why is it now trading…[below $1,700 and] not $2,000? Words: 1139
So asks Merryn Somerset Webb (www.moneyweek.com) in her original article*.
Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has further edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
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Webb goes on to explain, in part:
[There are] all sorts of reasons…[why gold is trading so low]:- Panic begins [and] traders deleverage in a flight to liquidity (cash and the US dollar in particular) and everything gets hammered in the process. In 2008 this effect on gold (it fell 30%) was pretty temporary.
- When traders get margin calls (i.e. they have to stump up extra cash as collateral for some of their trading positions), they tend to raise the cash by selling profitable positions rather than non-profitable ones (who wants to book a loss?). Gold has had an amazing run so far this year so it makes sense for panicking people to take their profits on it in a hurry.
- Then there are exchange traded funds (ETFs). The sudden market understanding of the risks the global economy faces means that all the industrial metals have fallen fast (platinum, palladium, copper etc). These metals are often traded in packages or indices along with gold. So when they are sold the gold price falls along with them.
The fact is that while it would be nice if gold always went up in a crisis, short term it can get just as burnt as everything else, just as in 2008.
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So what next?…I am still a happy holder of gold…The only thing that could really mean that it was all over for gold would be a long period of deflation in the west and, while I’m sympathetic to the arguments for that, I am not convinced of them. Bernanke…[has not] turned the printing presses on [yet again]…but I bet he still has them primed and ready to go. The same goes for the Bank of England and the ECB.
The price of gold is a function of the market’s trust in central banks to protect the value of currencies…and…that has [not yet] changed…
*http://www.moneyweek.com/blog/why-you-should-hang-on-to-gold-14000
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