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Investors want to know: What's driving down the price of gold - and how long will the plunge last?
Gold prices tumbled Monday by more than 9% - the biggest percentage drop in 30 years.
The yellow metal had fallen to just above $1,360 an ounce Monday afternoon.
Why Gold is Going Down
Gold and silver are taking it on the chin again today - leading many readers to keep asking me why gold is going down, and how long the plunge will last.
Gold futures today (Monday) logged their biggest decline since the 1980s, falling $140.30, or 9.3%, to $1,361.10.
What's up? Or rather, what's down?
On Friday, I went into a few reasons why gold is going down to provide some understanding of the action.
But with still further weakness, I'd like to delve in a little more, without repeating myself.
Why Gold is Down
You see, general markets are selling off today too, and even oil has lost $6 per barrel since Thursday.
Though off slightly, the U.S. dollar has maintained strength, probably thanks to speculation the U.S. Federal Reserve may end its quantitative easing sooner than previously expected. That hurts commodities which are all priced in U.S. dollars.
There's also been a considerable amount of selling of gold exchange-traded fund holdings, which has forced those ETF managers to sell their physical bullion. That has temporarily added supply to the market, which helps push gold's price down.
Why Are Gold Prices Down?
Gold and to a lesser extent silver got hammered pretty hard today (Friday) - leading many of our investors to write in and ask why gold prices are down so much this week.
Gold closed Friday at its lowest level since July 2011. In the last two days, gold was off about $70 and silver off about $1.60 at their worst points.
So what's going on?
Well, in the search for answers I can see a few reasons.
It started Tuesday, when UBS cut its average gold price forecast for 2013 to $1,740 from $1,900. UBS cited risks the U.S. Federal Reserve would end its current QE sooner than expected, a move into equities, low inflation, improving economic growth, and a stronger U.S. dollar.
Then Wednesday, the leaked Federal Open Market Committee (FOMC) meeting minutes showed that several members believe the costs of the $85 billion monthly bond purchases outweigh the benefits. We're being led to believe that "many participants" think improving unemployment could justify slowing up on bond-buying "at some point over the next several meetings."
Remember that these are not minutes where members' comments are actually written down word-for-word (like they ought to), these are carefully crafted statements to influence opinion. The Fed is known to try to "manage expectations, so it wants it to look like bond-buying will end sooner than later.
But I, for one, don't buy it.
Goldman Sachs Is Manipulating Gold Prices Right Before Your Eyes
Goldman set the table by predicting a turn in gold prices back in December 2012, which no doubt contributed to the precious metal's 5% decline in the first two months of the year.
At the end of February, Goldman issued a research report that said the big Wall Street bank had soured on the yellow metal, and dropped its three-month target for gold prices from $1,825 an ounce to $1,615, its six-month forecast from $1,805 to $1,600, and its one-year outlook from $1,800 to $1,550.
Then, just yesterday (Wednesday), Goldman doubled down on its negative outlook for gold prices.
The bank's new targets for gold prices are $1,530 in three months, $1,490 in six months and $1,390 in one year.
The double whammy - two downgrades in two months - had its intended effect, as gold prices fell 2%, to $1,558.80, after Goldman released its report. It was the biggest single-day percentage drop for gold in nearly six months.
"If you've ever suspected gold prices are being manipulated, you're not alone - and you're right, they are," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.
The proof is right in front of us.
Every Gold Coin Has Two Sides
Just as every coin has two sides, every data point that doesn't meet expectations usually has an upside somewhere.
For instance, although gold prices have fallen with the strengthening U.S. dollar, the yellow metal is appreciating in Japanese yen. So when negative news about the economy came out this week, along with the U.S. Labor Department reporting that the country added only 88,000 jobs in March, investors found reasons to be encouraged.
For one, the Federal Reserve is apt to maintain its stimulative easing course and keep interest rates low.
This Gold Prices Chart Points to a Looming 24% Jump
Despite a pullback in gold prices, hold on to your gold. In fact, look to buy more.
You see, thanks to record highs for the U.S. stock market, a notable shift from defensive assets to "risk-on" trades has occurred.
The yellow metal slumped 1.4% to $1,552.80 Wednesday marking a nine-month low. That's after gold prices slid below $1,600 an ounce in Q1 on hints of a global economic rebound. The slide prompted market participants to shed gold holdings.
It's "certainly understandable" for investors to have sold gold following a 400% appreciation over the last decade and move into stocks, said Malcolm Burne, chairman of the Golden Prospect Precious Metals investment trust.
But, here's why the tide may be about to turn.
What Maslow and Rand Would Tell Investors Today (And How It Relates To Gold)
I have always been fascinated by what motivates people. What motivates Tiger Woods to pursue the goal of being the world's greatest golfer?
What's the motivation driving Warren Buffett to continue purchasing companies instead of retiring in Tahiti?
Or how about the motivation behind the trucks allegedly packed with euros parked in front of the Central Bank in Nicosia?
What is most puzzling is the motivation driving investors to buy or sell their equity positions when research shows that holding an investment over the long-term is more successful than timing the market.
As Business Insider puts it, there's "proof that [investors] stink at investing." Its headline is catchy, and the chart shows the evidence, as the average investor has significantly underperformed oil, stocks, gold and bonds in the past 20 years. While, on average, investors returned 2 percent, oil, stocks and gold rose about 8 percent.
After inflation, the average Joe or Jill actually lost money.
In Gold, Not Cyprus, We Trust
Global investors had to muster the courage to keep calm as news of Cyprus' proposed partial theft of all bank deposits took Wall Street by surprise, closed the country's banks and drove the gold prices higher.
The thoughtless idea was intended to capture a portion of the $31 billion in bank assets held by Russians. According to the Financial Times, Cyprus has developed a "well-earned reputation for being a haven for dirty money from Russia."
Although Cyprus' government came to its senses and blocked the proposed seizure, the damage has been done. To many people around the world, raising income taxes may be one thing, but changing the rules to steal hard-earned savings from all citizens rattles their confidence. What Adrian Ash of BullionVault says is "most amazing" about this situation is that "small savers are no longer sacred."
It's remarkable to see the response from Cypriots, as they protested in the streets, with "NO" stamped on their palms, demanding the government take its hands off their money. It's refreshing to see their pushback to sanity.
How did this tiny island make it into the European Union (EU) in the first place? The Financial Times gave an insightful background:
"Many EU leaders had been deeply reluctant to admit Cyprus into the union in 2004, without a peace settlement that reunified the island. But Greece had threatened to veto the entire enlargement of the EU - blocking Poland, the Czech Republic and the rest - unless Cyprus was admitted. Reluctantly, EU leaders succumbed to this act of blackmail."