Peter Krauth: Gold and silver are taking it on the chin again – leading many readers to keep asking me why gold is going down, and how long the plunge will last.
Gold futures today (Monday) logged their biggest decline since the 1980s, falling $140.30, or 9.3%, to $1,361.10.
What’s up? Or rather, what’s down?
On Friday, I went into a few reasons why gold is going down to provide some understanding of the action.
But with still further weakness, I’d like to delve in a little more, without repeating myself.
Why Gold Price is Going Down
You see, general markets are selling off today too, and even oil has lost $6 per barrel since Thursday.
Though off slightly, the U.S. dollar has maintained strength, probably thanks to speculation the U.S. Federal Reserve may end its quantitative easing sooner than previously expected. That hurts commodities which are all priced in U.S. dollars.
There’s also been a considerable amount of selling of gold exchange-traded fund holdings, which has forced those ETF managers to sell their physical bullion. That has temporarily added supply to the market, which helps push gold’s price down.
We’ve also seen an increase in speculative short positions for gold futures on the COMEX exchange, accompanied by a decrease in speculative long positions.
So those are the pressures on gold. Now let’s look at the other side.
The fact is that Chinese demand has been and remains very strong, along with considerable and growing demand from a host of other central banks, mostly from the developing world.
Despite the carefully crafted statements from the Fed about potentially ending quantitative easing sooner than expected, the reality is that’s highly unlikely. Their requirements of higher inflation and lower unemployment are a long way off. Banking crises (like Cyprus), overhanging sovereign debt (think Europe, the United States, Japan, etc.), and intensifying currency wars will also remain a reality for some time to come.
Remember that bold headlines from major mainstream news and financial media, raising the specter of an end to the gold bull, also help to feed the selling.
And there’s another reason gold’s selling off…
It’s called technical selling.
That is, once prices breach a certain level, some traders’ selling levels get triggered. So it’s likely that a good portion of this action is purely technical, on top of weak sentiment.
Will Gold Prices Keep Falling?
I believe gold will end the year much higher than where we stand today, and I believe the precious metals bull market will see gold and silver prices much, much, much higher before it’s all over.
Just hang tight.
And don’t be surprised if we hit more trailing stops in the days ahead. Just remember to maintain your discipline and follow your stops. Once things settle down, we’ll likely be reloading with new positions before long, and at very attractive levels.
By the way, Jim Rogers says if gold falls enough (though he didn’t specify a price), that he’d buy more. With the depth of his experience, I’d heed his call pretty carefully.
Related: SPDR Gold Trust ETF (NYSEARCA:GLD)
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