Gold In Free Fall-- Why??

Before we start today's posting on gold, we at 'A&G' send our deepest condolences and sympathies to those who were affected physically and/or emotionally by the explosions that rocked Boston during their annual marathon yesterday..

So far 3 killed and 144 wounded as of the time of this posting, early Tuesday morning.. Needlessly killed or maimed simply by choosing to spend their day among the historic celebration of the 116th marathon.  

When more details come in and if there's any information that relates to the themes of this blog-- economics and finance, will provide them and go into necessary depth...

So back to the original theme of today's posting; a subject we normally don't talk much about-- gold.

~ Cherlize Theron

And the reason we rarely if ever talk about gold is because unlike most finance sites, we aren't trying to sell you the commodity or sway you to invest in it. In fact we don't seek to sell you anything ever or nudge you to invest in A or B or C..

Its not why we're here & whether you own gold or you don't-- its your business.

But for those who may not be aware, the price of gold has plunged over the last two business days.    By the end of the trading day last Thursday, 4/11, gold was at $1561.00/oz.  By the close of the market yesterday Monday, 4/15, gold closed at $1345...

That's a drop of $216 in 2 trading days..

And the big question as always is, 'Why'?

One theory is, "precious metals are coming off the same reason the stock market is going up--because confidence is improving," said Jim Paulsen, chief market strategist at Wells Capital Management. "You see that armageddon premium in gold and silver coming out." (CNBC)

Another theory is, "Margin calls may have over-extended the drop and forced many to liquidate their positions, said Thomas Vitiello, partner at Aurum Options Strategies  (CNBC)

How about this one: "As ABC Radio’s Richard Davies reported this morning, the reasons for the plunge are linked to the rise in the stock market, the slow, steady improvement of the US economy and the recent strength of the dollar." (ABC News)

We say nope..

Anyone confident in this economy is a clueless idiot who doesn't understand finance or makes a conscious effort to become a full-fledged proud Know-Nothing.

The margin call explanation is flimsy at best, and even those who are heavily invested in the market knows its all BS; fake and fraudulent but in investing, you seek profit first, and ask questions second..

We think this theory is the most accurate:  ""I think it would be unfair to force the Cypriots to sell [gold] and not to have others do exactly the same thing," Dennis Gartman of Gartman letter argued. "I expect Spain and Portugal, Italy will also be rumored to do it, and that's weighing on prices."

In other words, basic supply and demand.

As part of the EU extortion plan upon the ignorant and cowardly Cyprus government, they are going to try to sell hundreds of millions of euros worth of gold on the open market

This increases the supply and quantity of the gold circulating which leads to lessen demand and thus, less cost.  And with basic supply and demand, once something reaches its bottom price, buyers step in and thus propel up price to sell..

Cyprus will sell its gold holdings out of desperation.  And definitely Spain, Portugal and Italy will soon follow..  And those investors and speculators who held onto gold expecting it to reach $2k and above are now having panic attacks and selling..

" "There are a lot of people throwing up their hands. Throwing positions overboard. Panic is everywhere," Gartman said in a "Squawk Box" interview on Monday. "I've never seen anything like this. I mean it."   Gold prices broke below $1,400 Monday, their lowest level since March 2011.  (CNBC)

In the stock market, big and small investors buy and sell based on two emotions.. Greed and Fear.   There isn't much thinking or brain-exercise that's done.. One simply follows the leader and hope that it doesn't translate into an investing dead end.

We think gold will continue to drop but not to 1980s or '90s levels..   It will drop just enough to entice mom and pop investors to buy into it, then mysteriously find its price adjusted with many innocent doe-eyed investor wannabes taking severe economic hits...

Now many people believe strongly in gold and insist people should buy it to protect one's family in case of economic emergency such as a prolonged bank holiday like which happened in Cyprus.

But let's logically follow this through..

First, you feel comfortable enough to have lots of gold in your possession at home, it means you are probably equally at ease possessing large amounts of cash..  This means you wouldn't be so dependent on waiting in line at ATMs to acquire cash...

And if you're one that holds gold certificates instead, fat chance that does any good during an unexpected economic emergency..

Next, this notion that possessing gold will help to ride out a storm is simply false.   In Cyprus, once the bank holiday took effect, most supermarkets were completely shelve-empty within 3 days.   Gasoline also quickly ran out so the govt set up rationing.

What good is gold if there's nothing to buy or trade with it?

~ Paris Hilton

And if you seek to transfer that gold to cash currency in an emergency, you have to be lucky enough to find someone with lots of cash to sell your gold to and no way will anyone give you true value since the act of selling gold in emergency is one of desperation...

But like we said before, people are free to do as they wish-- to buy and hoard gold or to not.

We say cash is King even in a currency-devalued society because the power of cash is that its both fluid and allows for anonymity.  

If you have cash set aside, especially in small-denomination bills, you will ride out economic storms far better than owning gold coins, and certainly better than owning paper that says you own gold