Gold! How Low Will She Go?

As an old commodity trader once told me, "Metals go up like a staircase and down like an elevator!"

Funny thing happens when it goes down....people usually stop buying it because they don't know where the bottom is...and if it hits $2400, you'll be wishing for $1400

Not just metals, but any speculative item in a free market. Here's why:

Item goes from 10 to 20. Buyers at 10 won't sell, because it could go to 30. Buyers at 20 hold for the same reason. New buyers drive the price up for the same reason. It goes up slowly, because it's always tough to spend money, even on a "sure thing".

Over time, it gets to 40 and peaks, or even stays there for awhile. With no indication that it will go higher, those who got in at 10 or 20 figure it's a good time to take their profits. Buyers at 40 sell when they see they're not making anything. No one wants to buy, because if they didn't like it at 10 or 20, why do they want it at 40? Why buy something today, when it's obvious you can wait a few days and buy it for less?

Note that when it's going up, you have one group of buyers to absorb the general selling that comes from things like businesses in their normal selling cycle, estates needing settled, investors with goals based on time (kid going to college), or emergency selling to pay unexpected expenses.

When it goes down you have three groups of sellers, plus general sales (above), and the only buyers are those who can't wait for lower prices.

Thus, prices fall faster than they go up. Not just metals, but oil or other commodities, stock, etc. Just look at the 10 biggest daily gains in the dow, and compare them to the ten biggest drops.

Most of the climb today appears to be dollar weakness rather than mass buying. That is the reason I own gold,to protect purchasing power. Always pay attention to the "whys" of rises and drops, they tell you more than price does.

gold will plumit back to 800-900 an oz then buy

The Feds. are 'quantitatively easing' to get the economy going again. This done by printing more money, in a controlled manner. For this reason, the general trend in bullion prices is to rise. High volatility of bullion prices masks this.

In theory, this produces two benefits:

More economic activity means more jobs. Too many Americans are unemployed at the moment. More economic activity means stronger stock and property markets. That also helps the nominal value of my superannuation.

The U.S. gets to pay off its debts easier with smaller dollars. I used this method over 10 years to pay off my mortgage, by using inflation to my advantage. You need a debt, not an asset, to achieve this.

To those who wish to invest in bullion that is a bonus, but most financial advisers suggest that you have no more than 5% of your total investments in bullion.


BTW, numismatic and bullion values tend to be counter cyclical to the stock market. With declining stock prices, one of the investment target areas for cash realised from shares is in the numismatic and bullion markets.

Being an old guy myself, I have to agree with BiggFredd. Heck, I can remember when a paper dollar and a silver dollar could be swapped one for the other at any bank. Just try that these days!

we will see what happens after Bernanke gives his little speech on april 27th and if he decides to do a QE3 then BOTH gold and silver are going to go UP UP UP!!