“There is one rule in life that applies perfectly to investing: Hope for the best, and prepare for the worst."
New York, NY (PRWEB) April 18, 2013
The gold spot price fell over $200 between Friday and Monday, and analysts have been working overtime to find the root cause of gold’s worst two-day drop in 30 years. One magazine, The New Yorker, recently published an article that purports to give the six reasons that could have caused gold’s downfall.
The first possible reason given by The New Yorker’s John Cassidy is Bitcoins, a decentralized, digital currency that is used to buy goods and services online, and is not tied to any nation’s banking system. However, if investors were shifting away from gold and into Bitcoins, that currency should have gone up in value on Friday and Monday, but Bitcoins instead dropped dramatically. No, Bitcoins are not replacing gold as the ultimate safe-haven asset.
Goldman Sachs has been responsible for more than a few wildly fluctuating markets throughout the years, but is it to blame for gold’s latest dive? Goldman recently lowered its gold price forecast for the next two years, but so did a dozen other investment banks. Cassidy himself even wrote in the NewYorker that there is no evidence that Goldman was shorting gold last week, although it did encourage clients to do so. Therefore, although Goldman may have peaked investors’ interest in selling gold, it did not cause the losses on Friday and Monday.
The New Yorker article next proposes simple selling as the cause of gold’s decline. A money run takes place when investors decide to sell solely because lots of selling is already taking place. The snowball effect can, and has, wiped out billions of dollars in wealth in a matter of hours. While a money run could certainly explain some of the outflow from the gold market, something real must have triggered the sell-off. After all, objects at rest tend to stay at rest unless there is pressure from an outside force.
Many analysts, Cassidy included, believe that China’s revelation of an economy that only grew 7.7 percent in the first quarter of 2013 sparked the sell-off of gold. The news shocked gold, as well as silver, oil and copper. China is a large consumer of many natural resources, but since Chinese economists’ had earlier projected a growth rate of 8 percent, it seems unlikely that a 0.3 percent disappointment could cause gold to fall by over $200 per ounce.
The lack of inflation is Cassidy’s next point. After years of quantitative easing (QE), the consumer price index stands at just two percent. Has the United States beaten inflation? Hardly. When food and energy costs are calculated into the CPI, real inflation is just under 12 percent. However, it is possible that government-friendly news outlets have promoted an agenda of economic recovery for so long that some Americans have started to accept it as fact. Regardless, the majority of people who own gold are sharp enough to realize that devaluation of U.S. currency has only just begun.
Cassidy’s last theory is this: now that the blatant signs of a recession are no longer visible, investors are shedding gold for more traditional assets, like stocks and bonds. Sadly, this is likely one of the main causes of gold’s recent loss of value. Although the parameters for hyperinflation, economic collapse and bursting stock bubbles are in place, too many households have been duped into believing that the worst of the storm has passed. These investors may pay dearly for buying into our government’s claims of recovery, because those who study the markets diligently know that the ever-expanding U.S. debt, non-stop QE measures and incessantly adding to the currency supply can only hurt the United States in the long run. As Stewart Lawson, vice-president of marketing for Gold Price, says, “There is one rule in life that applies perfectly to investing: Hope for the best, and prepare for the worst."
Gold Price (GoldPrice.net) is a precious metals dealer with offices and depositories in New York, Texas, California, Utah, Delaware and Puerto Rico. Gold Price specializes in physical gold and silver such as modern bullion bars/coins and certified rare coins. They offer investors a free award-winning gold starter’s kit by visiting http://www.GoldPrice.net or calling 1-800-767-1423.