Why is Gold and Silver in Free Fall?

Posted: December 29, 2011 in Gold, Ongoing Criminal Activity, Precious Metals, Silver

I am sure this is a question many of you are asking yourself.  In times like these you must first ask yourself why I invested in gold and silver, next ask yourself what has changed.  Is there still an on going currency war?  Is there still massive deficits around the globe?  Did people around the world suddenly gain confidence in fiat currency backed by nothing?  Is the US in a better financial situation proving the dollar is now a safe place?  Has there been a massive discovery of gold and silver saturating the market with supply?  Is there still a massive derivative bubble totaling anywhere from $600 trillion to $1.5 quadrillion denominated in dollars? Are people around the world still buying physical?  Are Central Banks buying or selling? You can go on and on but I think you get the idea. 

In my opinion there are a few factors that are causing this sell off, whether or not some were done by design such as MF Global we will never know.  Let’s take a look at a few possibilities.

1. MF Global – Whether or not this was done by design the effect was predictable.  There is fear and complete loss of confidence in the COMEX due to the possibility of confiscation.  Why would anyone by future contracts when there is a possibility of confiscation of your personal funds?  With this said bullion banks can hit gold and silver at will knowing there is no competition in the paper field due to MF Global.  Think about that, until confidence is restored and it’s proven your money is safe trading futures, the only competition will be physical buyers.  In the long run this is great and guarantees destruction of the paper gold and silver market, however the adjustment period could be wild. 

2.  Dollar Strength –  The good old dollar which for now is the best of the worst.  Again we are in an ongoing currency war which is  a race to the bottom.  However, it will take time before currencies like the euro and dollar fall of a cliff.  Currency wars should be thought of as a teeter tot until we reach the point of no return.  This means the Euro will go down, the dollar will go up or vice versa until we reach the bottom.  Make no mistake about it Central Banks want weak currencies.  If you would like a detailed break down on Currency Wars I recommend reading the recently released Jim Rickards book called “Currency Wars”.

3.   –  This time of the year is thinly traded.  Most traders are done for the year, on vacation and will not be back until the first of the new year.  With that said this would be an additional catalyst that would make it very easy to push prices down. 

These are a few reasons why I believe we are seeing pressure, of course there could be other reasons.  I personally am not concerned, the story has not changed.  Who knows when we will see the bottom.  If you are confident in the story and buying physical some of you may hope we go lower, in order to pick up physical on sale. 

I am not giving investment advice but you need to think outside the box during times of sell offs.  How could you hedge your physical holdings during these massive sell offs and technical breakdowns.  You could keep your dollars for now until you feel the sell off is complete, continue adding to your physical holdings lowering your cost basis, or buy short-term puts on SLV and GLD using profits to buy more physical.  These are a few ideas to hedge your physical holdings, again I do not recommend you do any of them I am simply trying to get you to think outside the box and stay confident in your physical holdings.

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