Find out why investors now have a rare opportunity to capitalize on this unexpected plunge…
It’s one thing to be out of favor.
It’s entirely another thing to be sent to the slaughterhouse with no justifiable reason.
For gold over the six months, the shift from the former to the latter has been outright shocking to say the least.
Sure, we’ve seen the price of gold fall from its September 2011 high.
But this latest cliff dive has analysts scurrying for answers.
Simply ask any of the talking heads on Wall Street, and the number of theories is enough to make your head spin:
- The Oprah-esque Effect – where the big financial institutions (re: Credit Suisse or Goldman Sachs) simply announce which way they think gold is headed, and the herd follows loyally
- The Technical Backseat Driver – where analysts guess what price level would trigger a selling landslide if breached (and often keep guessing until it does happen)…then, voila!
- The Gold Fatigue – where the 12-year run has given people all the worrisome economic news than they can handle, and they finally cave
- A Stronger Economy – where improvements in economic data draws people away from gold
- A Weaker Economy – where less than stellar economic data causes the same reaction (which somehow defies conventional logic, e.g. gold as a safe haven)
- The Wrath of Cyprus – where rumors of Cyprus selling its gold holdings to bail itself out is somehow enough to disrupt the entire gold market even though they make up a mere 0.04% of the entire world’s reserves
- The Gold Bubble Finally Pops – where it appears that investors finally lost all hope in gold even though the peak happened nearly two years ago
- The Fed’s Plan To Stop QE – where even if QE was to end today, that the huge debt burden left behind will likely be ignored by investors – showing just how little they know about the US dollar’s weakness
I can go on…
But the point is, a number of these explanations seem to contradict one another.
Therefore, I’m not convinced that any of them actually caused the dramatic free fall we just witnessed.
At most, some of these are self-fulfilling prophecies and those who are shedding their gold assets are seemingly doing so out of fear and because everyone else is doing the same.
In short, this week has been nothing more than panic selling.
Fundamentally, many of the reasons for buying gold have remained unchanged. Consider which of the following are currently underway:
- Inflation: the US dollar has lost 90% of its purchasing power since the 1950’s
- Federal Reserve printing money: the Fed is still very active, purchasing $85 billion dollars worth of debt each month
- Currency disintegration: the volatility of European nations are threatening the survival of the euro (see also US dollar)
- Conflicts: the violent mining strikes in Africa that’s still disrupting production and trade
- Growing demand: China and India continues to lead the surge in gold consumption, as both population and personal wealth swell
- Hoarding: Central banks around the world are buying up gold in record amounts and tightening available supply
- Production in decline: Peak gold is inevitable, and mineable gold is becoming increasingly difficult and expensive to undertake
With all these issues inter-related and happening as we speak (and have been for most of the past decade), it easily explains gold’s current bull run.
And because these issues are far from being rectified, there’s really no convincing reason why gold took the beating that it did.
But due to panic selling, it has. Which can mean only one thing: a significant buy opportunity is emerging.
Now there’s no reason to think that gold can’t and won’t fall any further.
However, if gold prices drop to an attractive enough level, you can bet a buying frenzy will ensue despite what the analysts might have you believe.
Gold bugs may not want to jump back into the market with both feet just yet, because there’s no telling what the herd will do in the next few weeks.
But savvy investors who see an opportunity may want to consider averaging down or take a position on financially solid miners if the price is right.
The fundamentals for gold simply cannot be ignored… it’ll bounce back soon enough.