Gold Price Crash On Sovereign Debt Contagion And Economic Growth Risk

The Market Oracle ^ | 2-5-2010 | GoldCore

[blam]

Gold Price Crash On Sovereign Debt Contagion And Economic Growth Risk

Commodities / Gold and Silver 2010
Feb 05, 2010 - 04:36 AM
By: GoldCore

Gold fell sharply yesterday and is trading at $1,052/oz. In Euro and GBP terms, gold is trading at €770/oz and £673/oz. Support for gold is currently seen at $1,025/oz to $1,030/oz and resistance at $1,115/oz.

Equity markets internationally are tumbling amid sovereign debt default risk and global recovery doubts. Gold sold off yesterday as traders liquidated positions en masse and large stop loss positions were triggered. Gold was down 4% in US dollar terms but by much less in other currencies as the dollar strengthened considerably.
Risk aversion has spread from Asia to Europe this morning as markets sold off following Thursday's sharp losses on Wall Street and in Europe. Investors eagerly await the non-farm payroll numbers in the US later today to give guidance.

The selloff in gold will come as no surprise as in recent years gold has exhibited a strong correlation with equities in the short term. Traders in the futures market will quickly get out of all positions and go to cash in order to protect leveraged positions.
However, gold's long term inverse correlation with equities remains in place. What has happened in recent years is that gold falls in unison with equities initially but does not keep falling as much as equity markets and then has recovered from its selloff quicker than equities.

Given the degree of physical demand seen internationally and particularly in Asia this pattern is likely to be repeated as bargain hunters use this sell off to enter the market.
Given the degree of macroeconomic risk in the world and particularly the real risk of a major sovereign default, gold will be seen by some as attractive at these levels. Support is at the 200 day moving average at $1,018/oz and at previous very strong resistance at $1,030/oz.

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[JOAT]

Less than 1% is a 'price crash?'

Sounds like Soros has his mouthpieces trying to fulfil his prophecy.

[MsLady]

Never understood gold and silver. I hear lots of people saying you need some precious metals. My hubby doesn’t think they are such a good deal. But, if money becomes worthless, wouldn’t it be a good idea to have some gold/silver?

[PJammers]

Food would be worth more than gold in the event of total collapse.

[JOAT]

Food would be worth more than gold in the event of total collapse.

So would a rifle with plenty of ammo.

Gold is not for 'total collapse.' Gold is for the in between times. Like Zimbabwe-style hyper inflation or our own dollar collapsing sometime down the road.

Gold is for when there is still a veneer of civilization, but no stable currency.

If there is ever a 'total collapse' in America, no 'money' is gonna help. You better have a remote cabin with 40 of your closest friends armed to the teeth and 2 years of food laid in.

[agere_contra]

Not per ounce it won’t.

Gold has been a medium of exchange for as long as any form of civilisation has existed - with the possible exception of the jade-trading cultures.

Unless humanity shrinks to extinction level, gold is going to maintain its historic value of roughly 1 oz for 350 loaves of bread. Right now it’s about 1 for 500 loaves, but our culture has a bread oversupply and market forces are somewhat distorted by subsidy.

[Fee]

No more than 10 percent of your assets should be in precious metals to hedge against inflation/hyperinflation. For average persons, precious metal should be used to preserve the value of your assets vs assets based on paper currency. We do not have the inside track to speculate the ups and downs of gold and silver. Physically own the metals, do not own it thru paper certificates or ETF.
Personally I am accumulating it for possible inflation caused by all this dollar printing. Worst case is nothing happens and I simply transfer the cache to my kids when I die. No taxes is incurr as long as you do not sell it vs transfer of money and property to kids upon death which will incurr death taxes. Every generation should be taught to build upon the precious metals they inherit from the generation before and pass it on to the next generation.

[agere_contra]

Oh right, you said ‘total collapse’. I guess gold would indeed be useless then.

But total collapse implies - for me at any rate - something like a post-Yellowstone event or a plague of zombies. Having a valueless paper currency is not total collapse.

[Atlas Sneezed]

When it was over 1200, some sensible folks were saying that 1050 would be a good time to buy more (India bought 200 tons at 1045 late last year).

I think that advice is correct, and now is indeed a good time to buy gold (silver even better.) best to invest some,now, some later, and average in.

[screaminsunshine]

I think so. I keep about 500 face value of pre-1964 US coins stashed. I do not invest in stocks bonds or any of that. I do not have IRA or 401 K. I never trust the government. They seem to always have ulterior motives to me.

[PJammers]

MsLady, the person who asked the question, asked what would happen when money became worthless, thus a total collapse of the monetary system.

Roughly 45% of our current population relies on government subsidy. When the checks stop coming do you really believe they are going to be interested in gold? You can bet armed gangs will be more than happy to liberate any gold or other valuables from anyone who has them.

I would suggest getting pretty handy with a wrist rocket, crossbow or a compound bow. It would also be helpful to know how to make alcohol, bread or other items that could be used for barter.

Guns and ammo are good however they should only be used in an extreme emergency such as saving a life. Gunfire will only alert paramilitaries or government law enforcement.

We should be looking to learn how people survive in a third world country because we are rapidly becoming one.

[sten]

i’ve always known the 1 oz gold == 1 week of work.
ie:
1 oz gold could feed & shelter a family of 4 for 1 week. today’s average household income... $55,000. $1100 * 52 == $57,200

but the “1 oz gold == 350 loaves of bread” conversion is very interesting.

doing the math for today...
$1100 oz / 350 loaves of bread == $3.14 / loaf

checking today’s Publix bakery ads:
—
“Food of Life bread” $3.99
“Multi grain bread” $3.59
“French Hamburger Buns” $3.29
“Chicago Hard Rolls” $3.79
—

might not be the cheapest, but these are florida bakery prices at a quality super market (not the mass produced, crap bread like wonder). i can only imagine today’s bread prices in the big cities would be more expensive

[Oldpuppymax]

Don’t know a THING about economics, but owning gold, silver, guns, ammo, food and water will NEVER go out of style. And if the Hussein program continues unabated, emphasis should be on the ammo and food.

[investigateworld]

Good points.

Owning gold is for optimists!

[agere_contra]

The 350 loaf ratio is often quoted from the times of Nebuchanezzar (~400 BC).

Here is a random, good but eclectic article on the timeless purchasing power of precious metals - hope you find it useful!

http://inflationdata.com/inflation/Gold_Investment_Articles/Gold_the_timeless_inflation_hedge.asp

Some of the actual numbers in the piece I take issue with (the price of a suit for instance) but it has some value.

[MsLady]

That's what I thought, but, my hubby who is the money manager and is better with money then me, just doesn't go for it. I have one gold coin from my dad. Small Indian head coin, that's it. I'll try talking to him again. It doesn't make sense not to at least have some.

Someone else said foods better than gold. I'd have to agree somewhat, probably wouldn't hurt to have both. We live on a small non-working farm. But, over the years have gradually made our summer garden larger and I do can and freeze the food. Have 2 deer in the freezer too :)

[sten]

what would be interesting would be to track the value of gold, but not in terms of dollars. change the unit of measure then chart it.

if you change it to hours/oz-gold or loaves/oz-gold, then you would see a chart that would fluctuate due to economic conditions and sociological fears. a chart that would not require translating ‘then-year-dollars’ to understand the true situation. it would be a fairly timeless chart, but an accurate measure of the conditions of the day.

if the chart had the year on the x-axis and the y-axis was number of loaves, you would see it bounce around the average of 350. higher number of loaves would be good years and people are feeling optimistic towards the future. and as the number of loaves decrease, you’d see the bears appear and fears mount

[MsLady]

I don’t either. We have stocks, savings, IRA. I think we should add some coin to that. Maybe I’ll just buy it on my own. But, which gold/silver coins to buy? Does it matter?

[screaminsunshine]

I got silver. Unless you have a lot of money I like the silver half dollars and quarters.

[MsLady]

I was thinking silver too. Less cash up front still a good buy, and worth more then paper money. Still good in a crash.