What's behind the recent falls in gold & silver, and will it continue?

[SpacePete]

Putting this question out to SS member knowledge base. Does any have an idea about what is driving the recent price falls, and for how long will it continue? What are the fundamentals that are pushing prices down?

Thanks!

 

[wrcmad]

IMHO, people are sick to death of losing on PM's. Capitulation... it may be? But they have had a gut full of theories, are cutting their losses, and are now licking their wounds.
I also think the fundamental arguments the bulls push are somewhat flawed (but that's another storey).

To give it some perspective, consider the chart below:

This shows that if you had chosen to invest in gold (safe haven) rather than the US stock market since 2011 (just 4 years ago), you would be behind by 140%.
ie, had you invested $10,000 in gold, the value would now be $6000, rather than $20,000..... A $14,000 opportunity cost.
A loss such as this can take a lifetime to recover from... as demonstrated below:

How long would it take to earn back this opportunity cost?.... and recover back to SQUARE 1?
Using the average returns over the last 20 years:
S&P 500 - avg 6.7%pa - 20 years
S&P 500 (infl adjusted) - avg 4.4%pa - 28 years
10 year treasuries - avg 4.7% - 27 years
10 year treasuries (infl adjusted) - avg 2.4% - 51 years
Gold - avg 5.4% - 23 years
Gold (infl adjusted) - avg 3.0% - 41 years

Remember this is just to recover opportunity cost, and doesn't take into regard the lost opportunity during the years taken to recover.

Lucky I hedge with paper......

 

[Skyrocket]

Best time to buy PMs is when no one wants them?

 

[Holdfast]

Slow down in China.

Eurozone not seen as a good place to invest.

USD seen as better than other currencies.

Yellen...sprooking...will raise interest rates.

Strong USD = Precious metal taking a hit.

Will precious metal continue to fall?

Why shouldn't it? I see the USD gaining more strength.

For Aussie folk the USD / AUD exchange rate doesn't make buying now the best opportunity and unless we see prices lower than mid November 2014 I'd say if you already have a swag of precious metal, you can wait to see if the price drops further.

Having said that, I think Yellen's sprook about raising interest rates is like a silent fart in a cyclone!

Personally, I think it's a no brainer to own gold, silver and platinum (Especially silver)

Imo, the world is in turmoil and I really think things are going to turn turtle sooner or later...but...what do I know??? :|

History is your friend.

"History is the answer".

 

[JulieW]

Sentiment is as bad as we have ever seen it and worse than in 2007, after the price of gold fell nearly 5% or $50 with many markets closed and in illiquid market conditions on Sunday night.

Some $2.7 billion worth of gold futures contracts were sold on the COMEX in less than two minutes.

The Financial Times had an interesting article with the wonderfully-balanced headline, Gold bugs squashed by aggressive selling, which speculated that "Chinese funds" may have been responsible for 'bear raids':

"Traders and analysts said, however, that the nature and timing of the selling suggested there was more at play than investors responding to a slight strengthening in the US dollar or lower central bank purchases."

The Telegraph too asked questions about the highly unusual nature of the concentrated selling and described it as an "unprecedented attack" by "speculators":

"Powerful speculators have launched an unprecedented attack on the world gold market, driving prices to a five-year low anonymous funds sold 57 tonnes of gold in Shanghai and New York, choosing the moment of minimum market liquidity in what appears to have been a synchronized strike intended to smash confidence."

While the price recovered somewhat throughout the remainder of the day, the manipulative hammering of the price in the futures market once again has served to undermine confidence in the gold market in the short term.

Paper contracts, the equivalent of 24 tonnes of gold were dumped onto the Globex electronic trading exchange in New York in less than 2 minutes. The action took place at around 9.30 Shanghai time. Japanese markets were closed ensuring a minimal amount of liquidity and potential buyers to support the price. There is some discrepancy in the figures reported by different analysts and media.

Astute analyst Bron Suchecki of the Perth Mint points out that the selling began on the COMEX in the August futures contract:

"Below is a 1 second time interval chart of the August futures contract from Reuters. The area in the red circle is the 4 seconds of the Nanex chart above, which puts the move into context.

21-07-2015_2

Note that the volume traded in this one minute was 7,164 contracts, which at 100 ounces a contract is about 22 tonnes."

That a single entity or a group acting in concert would choose to sell a position in huge volumes at a time when an absence of buyers would guarantee them a poor price is a sign that forcing down the price was the likely objective of the concentrated selling.

Who these "anonymous funds" may be is unclear - the Telegraph describes them as "speculators". There appears to be little appetite to uncover who they were among the media. Hopefully, financial regulators will see the importance of stamping out such illegal practices.

Already financial markets and the financial system have all the hallmarks of a global casino and this is likely to worsen if such manipulations continue to be tolerated.

Close observers of the gold market will have noticed a slew of particularly negative, and often ill-informed, commentary on gold in recent days and sentiment is as poor as we have seen it.

Since yesterday there has been another of wave of negative, misleading and almost triumphalist commentary on gold most of which studiously ignores the clear evidence of manipulation of the price on Sunday night.

This negativity is unwarranted given the reasonable performance of gold this year in currencies other than the dollar. Even following the smash gold is up 4.4% in euros this year. It is also up in Australian and Canadian dollars - not too mention in Latin American currencies which are again under pressure.

The current negative sentiment towards gold is unjustified given the backdrop of gobal currency debasement and a global economy being force-fed debt to keep it a very fragile recovery from ending and a new global recession or indeed Depression.

Further, technical damage has been inflicted by Sunday night's manipulation and prices may yet fall further.

However, given the importance of diversification and of holding physical gold as financial insurance - rather than as a speculative tool - the current price weakness may be viewed as an opportunity.

The conditions which led to the 2008 crisis - i.e. excessive debt - have not been dealt with.

They have been papered over with more electronically 'printed' currency and debt. The narrative that gold is now irrelevant because the "recovery" has taken hold is not reflected in the conditions of people living in the real world - be they people in most Middle Eastern countries, the majority of people in Ireland, Spain, Italy, Portugal and of course Greece. Nor indeed, the 45 million Americans, 15% of the U.S. population, currently unemployed and having to live on food stamps.

The notion that gold is set to decline further as the Fed raises rates is based on the highly optimistic assumption that the Fed will actually raise rates voluntarily and not continue to defer doing so until forced to by circumstances.

At any rate, the historical record shows that gold tends to rise with nominal interest rate rises - as was seen from 2004 to 2008 and in the 1970s - and the Fed are unlikely to raise rates in any meaningful way while deflationary forces persist.

We advise clients to ignore the noise and pay attention to the factors that caused them to diversify into gold. These conditions have actually deepened in recent years.

Physical gold will protect wealth in the event of banking crises, bank bail-ins, systemic crises caused by cyber warfare and other risks that ourselves and well placed commentators have highlighted in recent months

http://www.zerohedge.com/news/2015-...’s-2-minute-27-billion-“unprecedented-attack”

 

[trew]

Does any have an idea about what is driving the recent price falls

Nope.

and for how long will it continue?

nfi

What are the fundamentals that are pushing prices down?

Possibly the winding down of the Chinese building boom of the past 10 years ?

Short term prices are determined by the futures markets, which don't have all that much connect with reality these days.
Most, if not all, futures traders are working on technical analysis so chart expectations lead to chart reactions in a self fulfilling loop.

 

[Peter]

I always thought that because gold offers an alternative to currency that it would be attacked
by currency manipulators.ie.politians, bankers, etc.I expect more of it.

 

[JulieW]

I think it's always good to remember that the price being discussed is a paper promise leveraged possibly 100:1, and the real value of physical for sale is mostly independent of the paper price.

 

[wrcmad]

.... and the real value of physical for sale is mostly independent of the paper price.

I have never observed that. In fact, I still don't see it.

 

[col0016]

.... and the real value of physical for sale is mostly independent of the paper price.

I have never observed that. In fact, I still don't see it.

Go look in the for sale section and you'll see most going for above spot

Edit: it's not independent, but it's not the same as the paper price.

 

[wrcmad]

.... and the real value of physical for sale is mostly independent of the paper price.

I have never observed that. In fact, I still don't see it.

Go look in the for sale section and you'll see most going for above spot

Edit: it's not independent, but it's not the same as the paper price.

I noticed you referenced 'spot' in relation to the physical price.... that would confirm my suggestion that it is in fact mostly dependent.
Everyone knows there is a production premium on phys.

 

[JulieW]

Asia continues to add significant amounts of gold bullion to their wealth reserves.

Wall Street and its sycophants would like us to consider gold to be just 'a pet rock' or 'like trading sardines.' And yet central banks have turned to be net buyers, and Asia and the Mideast continue to buy bullion in record amounts. Talk to the Chan.

One of the few coherent things Alan Greenspan said was that statists of all persuasions, both right and left, have 'an almost hysterical antagonism towards gold.' This is because gold resists their will to power over others.

So why isn't gold 'working' at this moment in history?

"We hypothesize that, having learned from the misadventures of the 1960s, the policy elites, well-versed in the practice of financial engineering and market manipulation, would have seen no need to dump stocks of government gold reserves onto the market, 1960s style, to keep the price in check.

Instead, synthetic gold, sourced in pyramids of credit extended to bullion bankers by central banks with little or no claim on physical substance, have provided a more efficient, better-camouflaged form of intervention. COMEX synthetic gold and related over-the-counter derivatives are traded in macro strategies implemented by hedge funds, high-frequency trades, and commodity funds in pair trades with interest-rate, currencies, equity futures, or even more exotic offsets. The volumes traded are huge, and bear little resemblance to actual flows of physical metal.

We suspect that shorting gold has come to seem like a riskless proposition as long as there is confidence in the Fed. Synthetic gold is the perfect substance for a carry trade: an easy borrow with very low carrying cost and little upside basis risk. Such a hypothesis, in our opinion, does much to explain the incongruity of a declining gold price while fundamentals for paper currency, and the U.S. dollar in particular, obviously deteriorate; while demand for physical gold has exceeded new mine supply for several years running; and while above-ground 400-ounce .995-gold bars located in London, New York, and other financial capitals (in cohabitation with speculative trading activity in paper markets) have steadily dwindled and disappeared into Asian financial centers reformulated as .9999 kilo bars."

Tocqueville Gold Newsletter 2Q 2015

The dumping at market of very large amounts of paper assets into quiet market hours has been well documented in many places. It is a well worn market manipulating strategy abused by some very large trading desks, often playing with other people's money. Citi privately called it their 'Dr. Evil Strategy.'

It is funny how the systematic rigging of so many financially related markets has been revealed, but the blatant manipulation of the precious metals market, which is certainly knowable by anyone with a basic knowledge of the markets and a computer terminal, is so willfully ignored. A love of money, lust for power, and a lack of integrity will alloy to make people hypocrites.

When we see such trash articles being written, and passed along mindlessly by those who yearn to warm themselves by the fires of the oligarchs, we know that gold has cast a cold fear into the hearts of those who would be kings, and their privileged servants.

And considering the long, cynical rally in paper assets that culminated in the financial crisis of 2008, when people start believing in the power of fraud and willful distortion of markets, we can only say as we did then, this will end badly

jessescrossroadscafe.blogspot.ca/2015/07/shanghai-gold-exchange-sees-618-tonnes.html

 

[-j-p-shmorgan]

Asia continues to add significant amounts of gold bullion to their wealth reserves.

Sigh..........They reported 1,600 tons.........
........The USA has over 8,000..........

 

[JulieW]

Asia continues to add significant amounts of gold bullion to their wealth reserves.

Sigh..........They reported 1,600 tons.........
........The USA has over 8,000..........

In one of three facilities.
Fort Knox audited lately?

 

[-j-p-shmorgan]

In one of three facilities.
Fort Knox audited lately?

You sound like you don't trust the government...pshh. :lol:

 

[FlashInThePan]

Asia continues to add significant amounts of gold bullion to their wealth reserves.

Sigh..........They reported 1,600 tons.........
........The USA has over 8,000..........

But that is the reported holdings within there reserve bank I believe. This amount does not include the reserves held in other State controlled Chinese Banks.

The Chinese always under report. Never let your foes know what true position is. The art of war. Stephen Leeb is the source of this information from the KWN puma bull camp.

 

[tolly_67]

So the Chinese surprise the market and announce that they have 10,000 tonnes of gold.......and then????
after a 3 day relief rally followed by a lull......down it goes. Why?
Because the rate at which they have been buying has done absolutely nothing to move the price of gold in the upwards direction. In fact it is going down. It is an investment out of favour and until that changes, it won't go up.
If they buy a 1000 tonnes it simply means that someone that had a 1000 tonnes did not want it anymore.
This is straw grasping. No single event will change the direction of gold. The negative must run its course. Then, quietly the turn will occur while we all have our eyes closed waiting for the inevitable fall which doesn't happen.

 

[scrooged]

This is straw grasping but If they buy a 1000 tonnes it simply means that someone that had a 1000 tonnes did not want it anymore.
.

:|

 

[tolly_67]

If Chile has a 1000 tonne and they sell it to China, it makes no difference. Just because China holds the gold it does not mean that gold takes on a new dimension. It is still gold. All that happens is an increase in the amount of blogs proclaiming to know the intentions of the Chinese in dethroning the U.S. dollar blah blah blah.

 

[FlashInThePan]

So the Chinese surprise the market and announce that they have 10,000 tonnes of gold.......and then????
after a 3 day relief rally followed by a lull......down it goes. Why?
Because the rate at which they have been buying has done absolutely nothing to move the price of gold in the upwards direction. In fact it is going down. It is an investment out of favour and until that changes, it won't go up.
If they buy a 1000 tonnes it simply means that someone that had a 1000 tonnes did not want it anymore.
This is straw grasping. No single event will change the direction of gold. The negative must run its course. Then, quietly the turn will occur while we all have our eyes closed waiting for the inevitable fall which doesn't happen.

I remember hearing at the puma bull site KWN (John Embry I think) indicating the sudden dropout of gold relates as a deliberate statement to China of "we are still in control" of the gold price in retaliation to Chinas gold hoard report. A currency war retaliation, a shot over the bow to let it be known as it were that we have the controls.