Gold and silver prices are always great water cooler talk, but when prices plunged over the course of two nail-biting days in April, it became the conversation across the globe.
The precious metals industry held its collective breath as gold dropped $225 between Friday, April 12 and Tuesday, April 16. By the time prices stabilized, gold was sitting at a two-year low of $1323, with silver tagging along down to $22.
Why the Sudden and Dramatic Crash?
By now you’ve read and heard multiple explanations behind the fall (which you can read in-depth about here and here), and how many analysts, including big names like Goldman Sachs, took the position that gold’s best days were loooong gone. Rumblings even swirled that gold might plunge to levels unknown since the 2008 financial crisis.
As an obvious reaction, some believe this is an indicator that the bull market has ended. However, many veteran Gold Bugs disagree, maintaining market corrections are healthy and normal — even for gold.
Currently, gold’s performance can be attributed to increased confidence in the economy and other investments, namely the stock market. Employment statistics generally translate to lower gold prices, and just this past Friday, the Labor Department reported the lowest number of jobless claims since the Great Recession began in 2008.
If the economy is actually recovering and the dollar strengthening, the Fed may end its bond-buying program known as Quantitative Easing (QE), which aims at printing money in an effort to stimulate the economy. If the program ends, one of the key factors supporting gold would be gone.
Another factor is paper contracts, which consists of “Shorts,” “Longs” and Exchange Traded Funds (ETFs). These funds have consistently experienced an exodus in recent months, as investors pull money out and take their profits to invest elsewhere. Also, when gold drops to a certain price level, automatic sell-orders kick in, further exacerbating the situation.
To learn more about Shorts and Longs, read our recent piece, Price Controls & Manipulation: Factors That Impact the Price of Gold and Silver. As we explain in the article, the sell-off of paper contracts has nothing to do with physical metal.
Gold: The Bright Side
Since the initial bloodbath, gold has recovered — though not to its pre-crash levels, and most certainly not to its all-time high of more than $1920, set in the fall of 2011.
Nonetheless, gold has bounced back relatively well, especially considering the many headwinds it has faced.
Since its low of $1321 on April 16, it rallied back to nearly $1500 for the remainder of April and the first week of May. And though last week was the first down period since the initial crash, gold still stands around $1428 at the time this was written.
While Some Think the Value of Gold has Decreased, Nothing Could be Further from the Truth
As prices dropped, physical demand spiked as investors rushed to purchase gold coins and other bullion items at a lower cost, especially in China, India, Russia and elsewhere.
If you tried to place an order through our website after April 16, you know what we’re talking about. While things have stabilized somewhat as more stock has become available, we’re still experiencing record-demand for gold and silver bullion.
What Does the Future Hold for Gold?
While that question can’t be answered with 100 percent certainty, the key components that brought gold to high numbers are still there. These factors include record-high debt levels in both U.S. and Europe and continued money printing (or inflation) in all corners of the world.
Many analysts and veteran investors like Jim Rogers, Marc Faber and Peter Schiff maintain that these fundamentals continue to support a long-term bull market in gold. They believe corrections are normal, and that after 12 years of solid gains, this was to be expected.
The experts’ advice? Use this opportunity to buy gold at a lower price — because it’s possible we won’t see prices this low for a loooong time.
What Are Your Thoughts?
Is the gold bull market over, or is it just taking a breather?
Do you plan to buy gold in the near future?
Feel free to leave us a comment below, or visit us on Facebook and Twitter today.
John Reb says
Whoooooooooooo Hooooooooooo……..Der’s gold in dem der hills!!!
John Reb says
Buy gold? Why would I buy gold…..when der’s gold in dem der hills!!!!!
John Reb says
There’s gold in dem der hills!!!