Silver is getting pummelled:
So is gold:
What does this mean?
Hedge funds and speculators who were long gold are trying to get a buffer of cash to soak up hits from the coming default cascade.
What does that mean for gold’s long term fundamentals?
Not much. The liquidation in gold is occurring parallel to a liquidation in stocks, meaning that the DJIA:AU and FTSE:AU ratios (etc) haven’t changed much. Here’s the FTSE 100 today:
Gold “crashed” in 2008 on a similar liquidation. Except — in real terms — it didn’t:
That “crash” between January 2008-9 was really a small correction in the long-term downward trend in the amount of gold your dollar can buy.
The next few months may be tougher for silver.
From the FT:
“Gold and silver are very different beasts,” says Kathleen Brooks, research director at Forex.com. “Gold has surged to record highs in recent weeks, because it is a haven and it is a good store of value in times of economic uncertainty. By contrast, silver has industrial uses, so is much more closely connected to the global economic cycle.”
She says the threat of another recession has weighed heavily on the price of silver: “The grey metal’s uptrend in 2010 and part of 2011 was fuelled by expectations of a strong global recovery and also by weakness in the dollar.”
“While the dollar remains weak, the growth outlook has deteriorated markedly. Unless expectations for the global economy change or the US Federal Reserve embarks on more policy stimulus, then silver may be in the doldrums for some time.”
This is essentially the view I have expressed. Simply, global financial engineers and central planners do not have the stomach to watch asset price slumps, margin calls, liquidations, a cascade of defaults, and debt deflation. I expect gold to fully rebound to well over $2,000/oz once the next flood of central bank liquidity commences and the perspective shifts back to dollar debasement. Silver may be in the doldrums for a while longer, but silver is such an industrially critical metal that I fully expect industrial demand to keep the price significantly above 2008 lows.
azizonomics 
I liquidated half of my stocks and put them in gold & silver…… when they were $1800 and $40, respectively. What I’m seeing is gold under $1690 and silver at $32. I’m still bullish on precious metal for at least several more years from now but I doubt whether I’ll get my balance sheet black for metals black within this year……
Ouch.
The real challenge for a fundamental investor is to have the tenacity to hold positions when it goes awry. I’d cautiously note that gold (in particular) and silver (somewhat) should rebound over the next QE cycle.
And there will be another one, no matter what Biden promised Wen.
I simply don’t believe the Keynesians will let aggregate demand tank. Bernanke made his name working on the Great Depression. Krugman and Stiglitz and Roubini are firing salvos. The underlying global financial and economic systems are fucked. But they just won’t let go, and let the market break so badly that the underlying problems have to be addressed. They will pump and pump and gold will go up and up.
your balance sheet didn’t change a bit, TJ. it’s still full lots of sound currency. only it’s pricing in diminishing fiat confetti is temporarily down. plot a USDXAG chart – it shows there’s a bubble in USD…
I wonder when that SNB’s CHF-EUF peg is going to be tested… ah, yes, as soon as everyone realizes Obama’s just used up all the debit limit already…
I think the moves in precious metal today were largely orchestrated. Bernanke is wagging the dog. He needed a dose of deflation and a dollar mini-rally to line things up for more monetization, likely before 2012 election. The banks are still bankrupt. He will attempt to make them whole with fresh dollars again soon.
Totally plausible.
Asked the question about orchestration yesterday:
https://azizonomics.com/2011/09/22/is-bernanke-letting-the-economy-crash/
Also wrote about Bernanke targeting gold yields a few weeks ago. This is the first stage.
https://azizonomics.com/2011/09/10/can-bernanke-print-gold/
So is this weekend a good time to pickup some gold and/or silver? I see the margins have been hiked again, should that put more pressure on g and s or has that already been priced in?
I’d get it before Benny “saves the day” and announces QE3, because that’s when I expect it to spike. I guess Benny won’t do that ’til Greece defaults, or unless there is a full-on 1929 style collapse in equities. Now, I don’t know specifically when either of these events will happen, and there is certainly a good chance gold could go lower before we get the spike.
Trichet seems keen for Benny to print now. So this might not be a very long dip…
http://www.forexlive.com/blog/2011/09/23/ecb-trichet-contagion-risks-threaten-emu-fin-stability/
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Mr. Aziz,
I must say I found your site today and it is refreshing seeing both critical evaluation of the world market as well as what I must say is some great discussion in comments (even from differing viewpoints).
If you have a few moments I am still a neophyte when it comes to looking at macro economics and I was wondering what software are you using to produce these graphs? Also how are you calculating your DJIA:AU value?
I am one man operation with very little time, so I cannibalise other people’s graphs, and create my own with some fairly common web sites. There are lots of sites that let you create custom economic graphs:
Economagic: http://www.economagic.com/
The St Louis Fed: http://www.stlouisfed.org/ (most important resource for macro)
Bloomberg: http://www.bloomberg.com/markets/stocks/
Bureau of Labor Statistics: http://www.bls.gov/eag/eag.us.htm
Economics Network: http://www.economicsnetwork.ac.uk/links/data_free
IMF Data & Statistics: http://www.imf.org/external/data.htm
As for the DJIA:AU value, read these articles:
https://azizonomics.com/2011/09/01/why-nouriel-roubini-is-wrong-about-gold/
https://azizonomics.com/2011/09/06/america-priced-in-gold/
https://azizonomics.com/2011/09/10/can-bernanke-print-gold/
Cheers!
Thank you, exactly what I was looking for.
Great write-up, I’m regular visitor of one’s website, maintain up the
nice operate, and It’s going to be a regular visitor for a lengthy time.
He needed a dose of deflation and a dollar mini-rally to line things up for more monetization, likely before 2012 election. The banks are still bankrupt. He will attempt to make them whole with fresh dollars again soon.
stainless steel