Gold Stabilizes After Brutal Rout

By Tom Luongo in Gold and Oil News | April 17, 2013 1:32 | Tags: , , , ,

I’ve been watching gold for so long that literally nothing fazes me anymore.  I am sure that yesterday’s drop turned the stomachs of many a gold investor.  And while I am not ashamed to admit that there were a few moment of anger watching things unfold, I can also say that my reaction was nothing compared to the horror of times past.  Today we saw a mild bounce in price after even more weakness brought prices down to $1320.  And even the most ardent bear would not have thought what we’ve just witnessed was possible or would note that this type of action is indicative of anything they predicted.

Gold brings out the worst of everyone’s emotions because it represents different and diametrically opposed ideologies.  Days like yesterday are created by the central banks and the bullion banks to ignite those emotions on either side.  Today we see gold trading at $1370 per ounce but yet none of the other major factors working into its price have fallen commensurately.  Even with a global slowdown and a continued fall in the price of Brent, which is doubtful from here, the Gold to Brent ratio is too low to be sustained.  Physical demand has risen exponentially and at these prices will force a crisis on the COMEX.

My guess is that it was the choice between the COMEX declaring force majeure and settling contracts in dollars — something that is already happening with redemptions from GLD — or allowing a major bullion bank or two to fail.  The Fed obviously chose the former.  There is literally no explanation for what has transpired that makes any other sense.


About Tom Luongo
Tom is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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