Gold Price movement before the big crisis

[masmas]

This is interesting, Gold actually fall by 30% at the early stage of 2008 GFC, then it rises to double the price. WHY??

If only I can predict the pattern like this one, it will be a buying opportunity for Gold before it is getting more expensive.
I guess what actually happened was that when the Stock Market collapsed in 2008, there was massive MARGIN CALL. Meaning that people who used debt to invest in Stock market were scrambling looking for cash when there is a MARGIN CALL (meaning the value of the stock decreases to the value of the DEBT in short).

I assume that those stock investors impacted by Margin CALLs are required to sell their gold holding (Physical or Paper Gold) quickly within 24/48 hours to get cash, hence massive gold sell off in a short period of time causing the gold price to fall by about 30% approximately from USD $1074 in March 2008 to USD $800 by November 2008. However, when the dust settled, gold Prices sky rocketed again by almost doubling the price to USD $1,910 by August 2011.

So my question, when will we be able to see this pattern again ahead or at least from this year ?

 

[Big A.D.]

This is interesting, Gold actually fall by 30% at the early stage of 2008 GFC, then it rises to double the price. WHY??

Panic = sell everything.

Once you've got a pile of cash behind you, you can start to look for over-sold and under-valued assets to buy out-of-cycle or observe trends appearing for short term trades.

You can't short oil futures or buy cheap stocks and distressed real estate with gold. You need cash to do that.

When the next crash comes along, expect gold to dip along with everything else, then rocket up and leave everything else behind. It's not so much the fear that cash will becomes worthless, it's just that people have to put their money somewhere, everything else is probably a shitty buy and the price of gold will stabilize and start going up before everything else does so people buy into the trend.

 

[Peter]

Also world trade is conducted in $ US.
After a crash, trade slows , and leaves a shortage in us$.
This causes $ US to rise,
I.e.gold to fall.

 

[SteveS]

This is interesting, Gold actually fall by 30% at the early stage of 2008 GFC, then it rises to double the price. WHY??

Panic = sell everything.

Once you've got a pile of cash behind you, you can start to look for over-sold and under-valued assets to buy out-of-cycle or observe trends appearing for short term trades.

You can't short oil futures or buy cheap stocks and distressed real estate with gold. You need cash to do that.

When the next crash comes along, expect gold to dip along with everything else, then rocket up and leave everything else behind. It's not so much the fear that cash will becomes worthless, it's just that people have to put their money somewhere, everything else is probably a shitty buy and the price of gold will stabilize and start going up before everything else does so people buy into the trend.

I'm not so sure. Many years ago, during a recession, I first heard the saying, "In a recession, cash is king." I saw how folks who had cash could snap up pretty much anything at bargain-basement prices, be it property, antiques, PMs, classic cars, businesses - whatever. Maybe a huge, worldwide GFC would be different, especially if fiat money loses credibility and/or significant value, but I expect folks with cash reserves will again go on a buying spree once the 'new normal' is established. Opportunities will be everywhere for those who are prepared.

 

[House]

 

[Big A.D.]

This is interesting, Gold actually fall by 30% at the early stage of 2008 GFC, then it rises to double the price. WHY??

Panic = sell everything.

Once you've got a pile of cash behind you, you can start to look for over-sold and under-valued assets to buy out-of-cycle or observe trends appearing for short term trades.

You can't short oil futures or buy cheap stocks and distressed real estate with gold. You need cash to do that.

When the next crash comes along, expect gold to dip along with everything else, then rocket up and leave everything else behind. It's not so much the fear that cash will becomes worthless, it's just that people have to put their money somewhere, everything else is probably a shitty buy and the price of gold will stabilize and start going up before everything else does so people buy into the trend.

I'm not so sure. Many years ago, during a recession, I first heard the saying, "In a recession, cash is king." I saw how folks who had cash could snap up pretty much anything at bargain-basement prices, be it property, antiques, PMs, classic cars, businesses - whatever. Maybe a huge, worldwide GFC would be different, especially if fiat money loses credibility and/or significant value, but I expect folks with cash reserves will again go on a buying spree once the 'new normal' is established. Opportunities will be everywhere for those who are prepared.

Ah, I meant that "everything is probably a shitty buy" in terms of valuation metrics being out of whack. As per the GFC, nobody could tell what was a good buy or a bad buy because the basic metrics had been corrupted, e.g. sub-prime loans mashed into CDOs and nobody could figure out quickly what the underlying assets were so they couldn't price them. You can't calculate the risk premium and come up with an acceptable rate of return for your cash is if you don't know what the assets are, let alone the risks involved in holding them. In a crash, the risk profile for most things is...fluid, so it's generally easier and safer to just dump everything, sit on the cash and look around for opportunities.

Since gold has no yield and basically just sits there looking shiny, it's price is determined by simple supply and demand. And that's not a bug, it's a feature - you don't have to like buying gold, you just have to hate buying everything else.

 

[Skyrocket]

There's no guarantee that PMs will fall again by 20-30% like they did when last GFC hit because imo it must still be fresh in people's mind that they rocketed up soon after it.

 

[Topherclaus]

There's no guarantee that PMs will fall again by 20-30% like they did when last GFC hit because imo it must still be fresh in people's mind that they rocketed up soon after it.

Gold was on the back of a multi-bagger rise from around '01 which is closer to the '08/9 GFC than we currently are. You'd think that would be fresh too? Though I guess people may have seen it as an inflated stock like everything else.

 

[masmas]

There's no guarantee that PMs will fall again by 20-30% like they did when last GFC hit because imo it must still be fresh in people's mind that they rocketed up soon after it.

Skyrocket,

Maybe yes, but so far it is has not reaching the trend-line for the bearish since the 2012 peak, see the below chart:

Gold might as well dip for a bit due to US economics getting better which may leads up to Interest Rate hike on December 2016.
http://au.investing.com/news/commod...d-extends-losses-as-dollar,-stocks-rise-41926

 

[Pirocco]

This is interesting, Gold actually fall by 30% at the early stage of 2008 GFC, then it rises to double the price. WHY??

Central bank gold sales in tonnes:

2004 479 $409.72
2005 663 $444.74
2006 365 $603.46
2007 484 $695.39
2008 235 $871.96
2009 34 $972.35
2010 -77 $1224.53
2011 -455 $1571.52
2012 -544.1 $1668.98
2013 -625.5 $1411.23
2014 -583.9 $1211.71
2015 -566.3 $1160.06

Over 2004 - 2008 CB's sales halved, gold price doubled.
2009-2010 CB's were net nearly neutral (alike not active on the gold market)
2011-2012 they instead bought, and gold price doubled again.

Gold ETF's show the inverted story, so one could recognize the two sides of trading.

 

[masmas]

@Pirocco,

Thanks for the sharing, that does make sense. The CB and their big players seems to manipulated the gold market when there is something bad about to happens.

and now the problem is that, when is the next one and what will be the indicator :/