April 15, 2013
Gold Gutted
By Brady Willett

The price of gold entered bear market territory last week, collapsing below $1,500 an ounce for the first time since 2011.  Two negative developments – Goldman saying short gold and Cyrpus potentially dumping gold – were reportedly responsible for gold’s plunge. However, as Hamilton noted, these negatives were incidental to the underlying theme of GLD redemptions:

“Remember Cyprus's 13.9t of official gold reserves? The recent "correction" in GLD's holdings has forced it to dump a staggering 169.8t of gold bullion simply to keep GLD shares' price tracking gold! We are talking about 5.5m ounces of gold here, from this single American ETF!”

Gold is being hammered again this morning. This time weak economic news from China is added fuel to the flames.

Time To Buy?

Whether now is the best time to try and catch the falling knife largely depends on your investment horizon and current exposure to precious metals. For example, if you do not own any precious metals now is an excellent time to start pecking. However, if you already own precious metals there may be no pressing need to go in deeper. 

The problem with the current 2-day bear market is that it arrives after an unbelievable 12-year bull run. To think that a few days of wild selling will immediately mark the beginning of another up leg may be naive.  We could be amidst a very drawn-out correction that doesn’t see gold reach for former highs for some time.

This said, we may be adding a gold producer to the Wish List during the current selloff.

 

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