Gold prices have fallen over 9% this week, which saw a massive sell off of stocks and commodities, so is this a sign that gold is now entering a bear market?

The precious metal hit $1,920 on September 6th and fell to $1,812 a week ago however crash landed at $1657 on Friday, which is a tremendous knock for gold but is this because the factors which drove gold so high have simply gone away?

No.

Gold's main inverse advisory, the dollar, found new ground in the wake of a huge asset sell off (up 2.1%) during a week in which risk aversion hit new highs and the dollar was actually seen as a safe haven by default but this boost for the greenback was one of many contributing factors leading to gold plummeting.

There were also rumours of another margin hike on gold and, as this has been cited for the previous fall in gold, this did not help the case for gold during this volatile week.

Then there was the selling of gold to cover loses incurred during the asset sale, which saw the FTSE fall over 4% in one day.

However one has to ask was this the physical market responding or the paper market?

One way to test this question is simple, try and get some discount off gold coins. Many gold coin dealers have increased margins in anticipation of an increase in demand due to the pull back with investors buying on the dips.

Be in no doubt China will have been buying gold hand over fist (in one way or another) and this buying from the east will become evident over the next few weeks.

The latest 2 trillion Euro injection proposal by EU officials to protect the European banks from exposure to a Greek default help to withstand the ensuing shock-waves is the last attempt to save the global economy and there are serious doubts over this proposal ever taking affect considering the democratic and political implications.

But if the proposal does actualize then it would be tantamount to a real money printing exercise paid for by the taxpayers of every EU member state.

In other words kicking the can further down the road with a size 10 boot one would think but it would not insulate against Italy and Spain's ongoing financial problems.

Have no doubt that gold will see some pretty horrendous losses in the short term if the markets don't feel confident in this latest EU proposal which will see a continuation of the asset bloodbath seen last week until the markets find their new low under such circumstances.

But if they do respond favourably there could be a modest rise in gold prices and even a good surge depending in the rumour over further margin hikes on gold.

However this is the short term and all this money needs to end up somewhere and in a globally debased financial system there is only one place that will be seen as the ultimate in safe havens.

Gold……oh and silver.

One area of growth in the next few weeks will be in the number of pairs of soiled underwear garments worn by those holding gold.

It's going to be choppy…..and smelly.

A little less so for those holding the physical but still, one could expect shares in laundrettes to go sky high.

Comment Here!

comments