YOUR MONEY

Gold – the glitter is gone

Monday, April 15, 2013, the price of gold futures dropped like a rock! 

Gold prices have been gradually declining since peaking at $1920.30 a troy ounce in September, 2011 (for an 11 year run up) but on Monday the price went into freefall: losing 10% for gold (and 11% for silver) to  $1377.00 .

When asked why the sudden plunge, 680News analysts were stumped as was Amanda Lang on CBC the National.  The experts concluded that “speculators” were bailing out, and, as one person on radio put it, “a whole bunch of people got cold feet at once.”

 

In a previous blog, I suggested that gold should not cost more than $800.00 an ounce based on the volume of active gold mining and the ongoing discovery of new fields.

As well, for over a year now, gold buying shops have popped up everywhere to cash in on the soaring price as people line up to cash in rings, earrings, family hand-me-downs, gold teeth and anything else that is gold (or silver). Even though customers get back at best 25% of what their jewellery originally cost -- as it now gets melted into bullion – many people see it as a profit for items bought decades ago.   And the Great Recession of 2008 has not yet ended. 

Consequently, between mining and recycled gold from ordinary people, the volume of gold available on the open market should now be at glut levels.

Overall supply should be way ahead of any demand for jewellery (68%)    . Industry and medical uses (12%) and bullion buying (20%) (based on Wikipedia “Gold”).

 

In fact, I spoke to a jeweller last week who told me:

1.  People are bringing in only a tiny fraction of gold jewellery compared to a few months ago. They have sold off so much in the last year that little is left.

2. Gold prices are now in the hands of speculators and computer ‘rambos’ who click a button to make a futures gold (or silver) ‘purchase’, putting only 7% down and hoping the price will go up before they must complete the transaction and pay up. It is high stakes gambling without needing to go to the casino.

The industry calls it “leveraging”,  just as the banks did when repackaging bad mortgages and causing the 2008 worldwide financial crisis and massive recession!

 

P.S.   If you want to learn more about gold and silver futures, see http://www.investopedia.com/articles/optioninvestor/06/goldsilverfutures.asp and   http://www.theoptionsguide.com/gold-options.aspx