Friday, August 19, 2011

With yesterday's market plunge, does anyone think Gold is at it's top?

So yesterday was another wild day on the worldwide stock markets.

Rumours about European banks were the catalyst.  Two Italian banks, Unicredit, the largest bank in Italy and Intesa bank were both insolvent. Another bank (now known to be Swiss National Bank) went to the ECB for a handout to the tune of 500 million dollars as it could not get funding anywhere.

Whispers that a banking holiday in Europe was close at hand set the global marketss on a free for all slide.

The DOW after being down by over 500 points rallied late in the day to be down only 419 points or 3.68%.

The Nasdaq was down 131 points or 5.22%. The German Dax was down 346 or 5.8%. The FTSE was down 139 points or 4.74%. The French CAC was down 178 points or 5.48%.

And while it may be European Banks as the current concern, it comes on the heels of the US debt crisis.

Recall that it was almost two years ago (November 19th, 2010 to be exact) when this blog commented that, "the current move to gold around the world is a hedge against the mismanagement of the state - which at this time and place is the United States with it's world's reserve currency status... we are currently witnessing perhaps the most profound paradigm shift in gold from the patterns seen over the last 20 years. During that time European monetary authorities sold the precious metal and Asian central banks accumulated official reserves in the form of US Treasuries."

At the time that post was written, Gold was sitting at $1,150 per ounce.

Just after midnight this morning (when this post was written) Gold was at $1,857 per ounce.

Is Gold at a top?

I would suggest you take a look at what Central Banks around the world continue to do as your guide.

As reported by Dow Jones Newswires, the demand for Gold by Central Banks quadrupled in the 2nd Quarter of this year. For them Gold at $1650 was a screaming deal:

  • LONDON (Dow Jones)–Central banks are topping up their gold reserves, quadrupling their total purchases from the market in the last quarter as they seek to reduce their dependence on traditional reserve currencies such as the U.S. dollar.

    Even with gold prices at record highs, emerging markets’ central banks have revived the official sector’s gold-buying interest. They are diversifying their foreign exchange reserves, which have grown along with their export industries. More recently, they’ve also bought gold in reaction to the persistent sovereign-debt crises affecting traditional reserve currencies, like the dollar and the euro. Analysts say this trend is likely to continue.

    "We expect to see additional demand support from official-sector purchases as numerous influential countries are becoming bearish on the status of the U.S. dollar as a reserve currency," said analysts at Swiss bank Credit Suisse.

    Central banks bought 69.4 metric tons of gold in the second quarter, more than four times the 14.1 tons reported a year earlier, the World Gold Council said Thursday.

    During the first half of the year, central bank gold purchases totaled 192.3 tons, more than 2 1/2 times the 72.9 tons bought in the first six months of 2010, the council said.
Gold is still cheap because you can bet it hasn't even begun it's ascent. Nor has Silver.

But make no mistake... it will continue to be a wild roller coaster ride involving wild swings.

Expectations are for a significant raid on the paper markets at about 8:00am PST today as this is the Friday before COMEX options expiry and those days the metals are usually targeted for a big hit.

Learn to love these type of days... the metals are on sale when it happens.
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  1. If gold is at a top, then the worlds reserve fiat currency is a bottom.
    There are people who suggest that gold is in a bubble, however they have been dead wrong on gold for over 10 years. The problem is with these people that their egos are so massive, they are forced to maintain a position of denial as precious metals skyrocket. Reality is a bitch!

  2. Okay W... Ive read your blog for a good long time now... and like the way you think. There is another person who I really like the way she thinks (along with Ilargi I suppose)... and she has discounted gold as the choice to reside with. This is possibly, because she thinks we are heading for an epic upset. Im somewhere in between... I think that oil is a problem, (Maloney suggests) it will fall to very low lows once the economy hits the wall.... at which point the economy should bounce until the next crunch... repeat.. right? Back to Stoneleigh... what is your response to the last line of their recent blog post:

  3. With a quick read through... I'm not sure exactly what they are saying.

    It looks like the argument is that... as investors loose the money they have invested in banks (share price evaporates), they will sell their gold to replace the lost reserves.

    Is this the take you have on what they are saying?


  4. gold 20000 oz

    This is also an excellent primer for those who still have not understood precious metals and make ridiculous argument like saying they do not pay any interest – what do you think a 30 per cent value gain so far this year replaces?

    ArabianMoney would only add the caveat that whenever we post videos like this it is usually after a major price increase and just before a price correction. It may be different this time.

    Gold prices could now be entering a parabolic spike as the greatest gold bug of all time Jim Sinclair argued would happen above $1,764 (click here). Today gold hit $1,868 for the first time.