When gold blew past 500, everyone thought it was too expensive. Now after 6 years of nonstop advance and nearly triple the money you would have made since, I'm really beginning to think this damn thing is living beyond its shelf life. Frankly, I've not thought much about gold until now. So I'm trying to come up with a list of macroeconomic reasons that might precipitate its demise. As a starter, let me state what I believe would cause gold to rise: war hyperinflation So, naturally, in times of peace and tame inflation (or even mild deflation), gold should fall. Well, so I'm told. State one macroeconomic reason that you believe will send the price of gold south.
Here's two:- 1) Aggressive rate hikes - when currencies offer a meaningful yield gold will have some proper competition. Not likely with Bernanke as Fed chairman, is it? So him stepping down for a Volcker type would hit Gold, IMO. 2) Meaningful economic recovery that creates sustained and substantial tax revenues for governments - then they might, just might, be able to eat into the monster debt burden. That will take a long time, I think. When you say 'kill' gold, are you talking about a return to $250-$500? You may never get that in your lifetime. But a 20%-30% correction is possible, any time you get risk aversion gold and other commodities can be liquidated to raise cash, as they were in fall of 2008. With Bernanke at the helm any such corrections would just lead to more money printing so Gold would probably bounce back pretty quickly. Basically until the debt in the system is paid down, and that could take a decade or more, paper money will likely remain cheap compared to Gold.
it's all about future inflation for the ECB, so yes aggressive ratehikes could happen, in fact some people are expecting three ratehikes for this year.
I'm not expecting these events to happen either. I'm expecting Bernanke to be around for another ten years and I'm not going to be shorting gold until he's removed. But those are the only scenarios I see that will change the outlook for gold... Until then I'm long physical gold, and not the crappy ETF stuff
1) A "hard" downturn" in the S&P-500. 2) People can sell their gold because it may be the only "good collateral" that they have to satisfy expenses and margin calls. 3) The Fed could "interdict" in the gold market. :eek: 4) People can somehow lose their psychological "adoration" for gold. It can start out as a slow sell-off that eventually cascades on itself like a mountain avalanche. 5) The futures exchanges can come under "duress" to greatly bump up futures margins.
The gold will remain high insofar as the value of dollar remains depreciated. Once the link between the two is severed, or people completely lose faith in the greenback (as in losing its reserve currency status), I believe the shiny nuggets will drop in value.
1) This time....yes. 2) Margins had been "too low" for "too long". 3) Instead of initial margin being 4% to 5% of contract value, (20 to 25 times leverage), to increase them to 10% to 12% would send a stronger "message" to the market and possibly force some intense long-liquidation. We'll see.
Everyone is looking for the 1980 scenario. The circumstances today are totally different. Any massive drop will likely occur from much higher levels than where the price resides today.