Monday, April 15, 2013

Gold & Silver Markets Enter Free Fall: Panic Selling Around The World

I spent the weekend in Key West for the wedding of one of my good friends. On Sunday night flying home I was following the Asian markets where precious metals continued their most violent sell-off in history. Dennis Gartman told CNBC that he has been trading gold for four decades and he has never seen anything like it.

Precious metals at the time of this writing are the most hated asset on the planet. Investors are dumping their positions or liquidating whatever possible as they can only see the market going lower from here.When gold was the most beloved asset in the world in August of 2011, moving up $100's of dollars in just a few weeks investors could only see the market moving higher. At that moment, I posted the following article and the following comments:

$1,900 Gold

Gold crossed its next $100 milestone in after hours trading on Monday.  I remember having to wait months to years for gold to make a $100 move a few years ago, but its recent rise from $1,800 to $1,900 took only a few weeks.

It is for this reason that I would like readers to take caution at the present time in the gold market.  Back in 2007, over $1,000 lower in price, people still felt uniformly across the board that it was insane to hold gold in your portfolio.

Today, while the public has still yet to enter the market, major investment vehicles such as hedge funds have entered in force.  Daily sentiment readings show traders at 98% bullish for gold, and the GLD just became the largest ETF in the marketplace in terms of size.

While I believe gold is going much, much, higher over the next few years, its current rise has been parabolic over the recent weeks.  As I discussed with silver a few months ago, investors should hold their current positions and wait for an attractive pull back to enter the market.

Back at $500 and $600 an ounce a few years ago, investors could throw caution to the wind entering the market, but today you have to take the temperature of the market around you.

I re-post that now not to say that I am some sort of good market timer because that is certainly not true. I re-post that now to show that we are in exactly the opposite situation at this moment than we were during the moment I was writing that article. Gold is $500 less expensive today and no one on the planet wants to own it.

I have been discussing the importance of raising cash for years to be ready for panic selling opportunities in asset classes you believe to be in long term bull markets. Gold just crossed under $1,400 an ounce. Will it stop falling now?  I have no idea.  Just as I had no idea back in August 2011 if the panic buying would push gold above $2,000, $2,100, or $2,200 an ounce. Markets that are in free fall have the ability to fall much further than what seems possible due to technical stops being triggered, algorithm trading, and panicked weak hands.

The Central Fund of Canada is an entity that buys physical gold and silver and stores it. As of this writing the fund's assets are selling at -6% NAV. That means that you can buy shares in the fund for 6% less than the spot price of gold and silver. Just a few months ago it was a positive 5%. I am guessing that after the blood shed in the overnight markets in Asia the premium could move further into negative territory today.

I am not telling you that today is a good day to purchase gold and silver just as I was not telling you that it was a bad time to purchase gold and silver in August of 2011. I would take a moment, a deep breath during all this panic selling, and think about how this global currency war is going to end. If you felt that gold was fundamentally a good long term buy in the summer of 2011, what has changed to make you reconsider?

1 comment:

  1. Thanks for taking the time to post on this gold drop. Your perspective is always welcome and helpful!