Gold fell along with most commodities and Equities. The movement of most other financial markets recently was consistent with spluttering growth and a rising risk of deflation rather than a new-found and sudden belief that the fiscal and monetary medicine is working.
It is not the first time this is happenning. In 2008 Gold fell from $1000 per ounce to $700. That is a 30% fall. Then in the next 4 years it reached $1400 or doubled. See chart below.
It is not the first time this is happenning. In 2008 Gold fell from $1000 per ounce to $700. That is a 30% fall. Then in the next 4 years it reached $1400 or doubled. See chart below.
It isn't simply that equities are falling, but more importantly that gold's swoon has come at the same time as steep falls in a number of economically sensitive commodities. Oil is down nearly 6 percent since last week, copper fell to its lowest in a year and a half and aluminum touched 3.5-year lows. Even the prices of wheat, corn and soybeans are down.
Deflation seems the logical reason for the fall of Gold.
Commodities slump sends slow ripples through world economy-prices of everything falling http://drkhalid.blogspot.in/2013/04/commodities-slump-sends-slow-ripples.html#!/2013/04/commodities-slump-sends-slow-ripples.html
Commodities slump sends slow ripples through world economy-prices of everything falling http://drkhalid.blogspot.in/2013/04/commodities-slump-sends-slow-ripples.html#!/2013/04/commodities-slump-sends-slow-ripples.html
What is Deflation? Deflation explained in a short video: https://www.khanacademy.org/science/macroeconomics/inflation-topic/macroecon-deflation-tutorial/v/deflation
Deflation and related concepts explained in detail:
United States has printed nearly $2.3 trillion since the investment bank Lehman Brothers went bust in 2008 in order to revive a moribund US economy. The market was expecting that the US Fed will announce a third round of money printing which is euphemistically referred to as quantitative easing III, or QE III. The earlier two rounds were known as QE I and QE II. As you would know that whenever people see more and more currency being printed they buy gold."
Bill Bonner wrote in a recent column: 'Our faith was never seriously challenged... It's still ahead for the year...Gold is still a winner. Gold investors are still winners. There is no reason to doubt that they will be winners this year...just like they have been every year this century. But that's not how it works. Not usually. The gold market needs to make its admirers feel like losers. It needs to cause them to wonder...and question their own faith and judgment. How so? By letting the price fall to...$1,200...or even $1,000. Then, we will be ready for the third and final stage of this great bull market'."
About Bill Bonner: http://en.wikipedia.org/wiki/Bill_Bonner_(author)
The price of any commodity however precious/important it may be is driven by demand, supply and the amount of currency chasing it. For example in the world just 40 years ago, the total amount of money in circulation was 30 billion GBP but in 2000 it was around 665 billion GBP.
Central banks , governemnts and Wealthy individuals keep about 10% of their wealth in Gold.
When the world economy is losing strength, countries and bank reduce the money supply to control inflation. However this control is only temporary as banks cause long term inflation.
On 5 March 1997, in a speech in the House of Lords in London England, the Earl of Cathiness made the following observations:
...it is also a good time to stand back, to reassess whether our economy is soundly based. I would contest that it is not, not for the reason to which the noble Lord, Lord Eatwell, alluded, which is that it is the Government’s fault, but our whole monetary system is utterly dishonest, as it is debt-based. “Dishonest” is a strong word, but a system which by its very actions causes the value of money to decrease is dishonest and has within it its own seeds of destruction. We did not vote for it. It grew upon us gradually but markedly since 1971 when the commodity-based system was abandoned.Metals including Copper is falling since about 6 months. see post http://drkhalid.blogspot.in/2013/05/dr-copper-may-be-telling-us-its-time-to.html
Let us look at what has happened since then. The money supply in 1971 was just under £31 billion. At the end of the third quarter of last year, it was about £665 billion. In 25 years it has grown by a staggering 2,145 per cent.But there are many big buyers which are natually waiting for the prices to stabilize before they can buy huge amounts of physical gold. These are:
- ETF buyers. Possible, but not as big as everyone thinks. The largest gold ETF, the GLD, only has 1,300 tons of gold. Compare that to the 8,000 tons the U.S. has.
- The Chinese. They are the big buyers in commodities, and there's no reason they would not be interested in buying on a dip. But they are investors, and they have been burned now, so it's also possible they may wait for things to settle out.
- Indians. Now it gets interesting. Indian women are the largest buyers of gold in the world; if they smell gold is a bargain they can make a difference.
- Central banks. Also interesting. They have stepped in before. A couple years ago, the IMF sold about 400 tons of gold...about half that amount ended up in Central Banks of several emerging market countries, including India.
- Investment funds. How about a big purchase from a sovereign wealth fund? A Templeton fund? Anybody who thinks gold is at a bottom? This is the most logical buyer...after all, it's buy low, sell high.
In My opinion Wait till August 2013 before buying gold since after such a fall, it takes 2-3 months for a stable trend to be seen.:
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