Great Paper Gold Deluge 2013
by Peter A. Grant
Apr 17, AM
(from USAGOLD.com)
Four days into the Great Paper Gold Deluge of 2013, it is beginning to look like the market is stabilizing around the $1380 per ounce level. At the Deluge’s beginning, gold was meandering along minding its own business with $1600 per ounce seemingly a barrier to further progress on the upside. Then came the mystery deluge of roughly 500 tonnes of paper gold – an event that led to an almost $200 drop in the gold price in the course of two short days.
Lower prices almost always generate both greater demand and ultimately shrinking supply, the one truism of free markets that needs to be remembered at times like these. The free market, as long as it breathes, has a way of taking care of itself. At the core, those who believe in the long-term value and viability of the metal see dips as opportunities. Early on, the big dump in gold lit up demand starting with the United States and Europe on Friday and carrying over to the Far East and Middle East on Monday.
Bloomberg online aired a number of interviews on the gold dump.
- UBS’ Dominc Schnider says the price drop was “excessive” and that gold is not “overly owned." That fact alone, he says, will lead to higher prices down the road.
- The irrepressible Jimmy Rogers says gold will go “much higher” over the coming decade and that where we are now looks like a “selling climax.” He goes on to say that “gold has gone on up every year” for twelve years, and that a correction was overdue.
- FX Concept's John Taylor, who has gained quite a reputation as an economic forecaster in recent years, says we are “getting close” to a low and now in “the buying opportunity range.”
- Tom Fitzpatrick, chief technical analyst at Citigroup, says gold’s drop is “not unprecedented”, i.e., that it compares to the drop in the mid-1970s and that it is headed for $3400 per ounce. He adds that the correction is healthy and that central banks and sovereign wealth are likely to take advantage of the lower prices. He concludes that investors should be buying this dip.
Fitzpatrick makes an important observation. In this new era for gold, institutional paper selling begets institutional, sovereign wealth fund, and central bank buying. That was not the case in the beginning years of this bull market. The days of uncontested short positioning in the gold market are over and that perhaps explains why in recent years sharp corrections have been followed by quick recoveries. The best strategy for the small private investor is to quietly accumulate and watch the big players battle it out.
