Gold heading higher and silver lower as stock market crashes?
Posted on 06 June 2010 with 2 comments from readers
If we look at a micro-analysis of the final stages of trading last Friday then it is notable that as the stock market dropped three per cent the price of gold went up and silver went down.
Is this some sort of harbinger of the days ahead? Certainly the stock market trend established in the worst May for the Dow Jones Index since 1940 (when the Second World War loomed high on the horizon) is now down.
Jobless slump
The anemic jobs report left even the most bullish television commentators struggling for words. The reality of an economy that has fallen into a depression and is now at best bumping along the bottom is only too clear.
Indeed, the danger looking forward is another dip down as European debt increasingly looks like a very large shoe about to drop. Who had even considered Hungarian public debt before it emerged as the next big problem on Friday?
Yet look at how the gold chart performed as the bad news piled up at the close of trading:
Not much doubt about the direction of the gold price as Wall Street sold-off at the end of a volatile week. Sadly the same could not be said about the price of silver:
It seems silver is again being sold down as an industrial commodity and not being considered as a cheaper way to hold gold. That said a market bounce on Monday ought to take silver up and perhaps gold down.
But this will be at best short term, if indeed it actually happens. It appears that the late 2008 pattern might be reappearing for silver but for gold it might well be different this time.
Golden hedgies
On the other hand, a great many hedge funds have bought gold since the late 2008 sell-off and history does have a habit of repeating itself. Funds that need to raise cash to meet margin calls in a hurry tend to sell everything, including their gold.
And yet investors have to hold their money in something and cash is not an entirely reliable king in this jungle. If nothing else the recent volatility of the US currency is an argument for at least some diversification of risk, and gold is the preferred diversifier.
Could that keep gold heading higher as financial markets crash? Well certainly it looks a new force countering a big correction in the gold price and a repeat of the dramatic 2008-9 price fall.
2 Comments posted by readers:
@Peter:
Why the Silver Price Went Down:
Last Friday, 4 June 2010, silver was taken down sharply by JP Morgan’s actions to repeatedly and aggressively enter naked short positions on the COMEX (aka: CRIMEX). That is the ONLY reason why the price of silver dropped significantly.
A Clearer Understanding of Silver:
You stated that “It seems silver is again being sold down as an industrial commodity and not being considered as a cheaper way to hold gold.”. Let me refute this, for the sake of your readers.
Silver is, in fact a cheaper way to hold gold, as you well know. But governments (especially the US government!!!) around the world are now afraid that their citizens are losing faith in paper currencies, and they don’t wish to see their citizens dump the worthless paper in favor of hard currencies. Since most people in the world can’t afford to own physical gold, silver is the natural attraction; but governments know this all too well.
The Corrupt US FED Leads the Way:
In my country (USA), that is why the government, led by the US FED and actively supported by JP Morgan (JPM), have been aggressively shorting the precious metals prices almost every trading day, and especially last week. Their main focus is to continue to short the silver price, because a “rapidly rising silver price” would do major damage to the increasingly worthless US dollar. At the present time, silver should be trading well above $40 per oz, but it isn’t.
The FED is Doing Us a Favor:
In reality, the FED is doing us all a favor by depressing the silver price, thereby allowing us to pick up as much physical silver as we can, while the prices are so depressed. Within 2 years, those that didn’t buy silver at today’s prices will regret it.
It is called “crowding.” Traders are buying because gold is going up…Eventually, if markets go lower so will gold, but at a lower pace….