Tuesday, September 27, 2011

What is Happening to Gold and Silver?

The fear gripping the market is palpable. Fear can cause people to do irrational or reflexive things in order to survive. The alternative is to hold your nerve and confront your fears and survival instincts and think in a calculating and careful way.

Markets are not for the fainthearted and I am sympathetic to why some are just happy enough to take no risk and work at their daily jobs, live off the proceeds, and save some in a nice safe deposit account.

This past week has been fascinating. If you study this daily, as I do, you get to a point of seeing large violent and unusual moves as being captivating. Watching the silver price go from $31.00 to $25.00 and back to $30.00 yesterday was highly unusual and speaks to me of a wobbling world economy seeking stability.

So what is happening to gold and silver prices? Is this the end? Should you bail and get cash and put it under that old mattress? This from Dan Norcini who has provided the best explanation so far of the selling of precious metals in the past three days:
"What positions could a hedge fund actually sell that are PROFITABLE if they need to raise cash? Answer - They have none -  the only market that is still showing a profit for this year (other than the treasuries trade) is GOLD. It started the year at $1422 on the Comex and closed today at $1640. That is a gain of 15% on the year even after the whipping put on it this week. A short note here - silver is back to where it began this year so there are no profits left in it after this week. 
Now consider that hedge funds are getting a boat load of redemption requests from disgruntled clients and from those who are simply scared stiff and have had enough of the insane volatility. They want their money back even if it means sticking it under a mattress. That requires these funds to sell the assets that they have to raise the necessary cash. 
In other words, gold, is the only profitable investment these funds have that is both liquid and available for them to meet margin calls and meet redemption requests. This is why it is being sold. The selling has nothing to do with it not being a safe haven but rather functioning as an extremely liquid investment that has shown them a solid profit. Winners are getting sold to meet losing trades and redemptions. Nothing more; nothing less. 
Once this money flows issue is resolved sufficiently, the factors that have led gold to rise will reassert themselves."

Gold in New Zealand dollars: $2082.87 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $39.20 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001

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