Why gold and silver Fall?

Why gold and silver Fall?

What Gold Charts Says?

The long-term chart shows that about a year after I gave a signal to aggressively buy gold in the $600 range, gold started moving in a smooth channel with a slope of about 45 degrees. Smooth channels with a 45-degree slope are often sustained for a long time. Such was the case with gold.

Why, has gold fallen instead of rising?

First, fears of a Eurozone breakdown took gold to a peak in 2011, but those fears are mostly gone, so gold is less needed as a safe haven. Second, the US is finally set, after five years, to end its quantitative easing of money supply, reducing the monetary fuel of speculators.

Third, as part of its bail-out package, Cyprusmay have to sell its gold reserves to raise 400 million euros.

roubled Italy has the fourth largest gold holdings in the world of 2,452 tonnes, worth a whopping $95 billion.

Speculators had poured $26 billion into gold-linked securities in 2010 and 2011.

But after mid-2012 , when fears of the Eurozone's survival ended, many speculators (including George Soros, the most famous of all) decided that the gold boom was over and got out of the market. Money fled from gold-linked securities. SPDR Gold Shares, the biggest exchange traded fund linked to gold, has seen net redemptions of $7.7 billion in 2013 so far.

1. Other factors influencing gold price are fears of liquidation by central banks in the troubled southern countries of the eurozone and the eventual unwind of the Federal Reserve from its present generously accommodative policies

2. Latest FOMC minutes indicate that bond purchases by the Fed are likely to be scaled back in the second half of the year. Does this mean the end of QE and gold's bull run?

3. Who's to blame for Friday's huge gold selloff? Well, the European Central Bank President Mario Draghi of course! According to Vince Lanci, Draghi directed comments at Cyprus during a press conference earlier today, and his message was quite clear: sell your gold, or you won't see any of that bailout/ rescue money. 

4. Gold futures fell the most in five months as Cyprus plans to sell the metal to raise money, while minutes from a Federal Reserve meeting spurred speculation that U.S. stimulus will be curbed.

5. Cypriot authorities committed to sell “the excess amount of gold” owned by the state, yielding an estimated 400 million euros ($522 million), according to a draft of a European Commission report obtained by Bloomberg News. 

6. Cyprus had 13.9 metric tons (446,895 ounces) of gold as of March 31, according to data from the World Gold Council. The holdings were valued $696.6 million, based on today’s Comex settlement.

Why Gold Up?

The Bank of Japan got a new chief who started running printing presses faster than Bernanke. Cyprus came close to confiscation of bank deposits, by taxing the deposits. Central banks bought $3 billion worth of gold in the first two months of 2013. North Korea threatened to fire nuclear missiles at U.S. targets.

Based on all of this news, gold should have gone to new highs, but instead gold and silver are in the dumps.

Data from the London-based council data show the U.S. as the top gold holder with 8,133.5 tons, followed by Germany with 3,391.3 tons. Cyprus was ranked 61st.

The Indian price reached a peak of Rs 33,000 per 10gm in late 2011

Soaring gold imports have hit $42 billion in the first ten months of 2012-13

After the US went off the gold standard in 1971, gold shot up from $35/ounce to $835 in 1980. It looked the best investment in sight. But then its price crashed and stayed down till 2001, at around just $250/ounce.

However, after 2003 gold zoomed again. It reached a new peak of $1,890 in late 2011. But it has fallen steeply to just $1,501 last Friday. It may bounce back temporarily , but will then fall again.

The fall in price has been less dramatic in India because the rupee has depreciated against the dollar. Even so, gold in rupee terms is down 10% from its peak. Goldman Sachs estimates that the world price will fall sharply to $1,270 by the end of 2014, and other analysts are almost as gloomy.

Gold is a safe haven to which people rush in troubled times, so speculators hoped its price would rise in today's troubled conditions. North Korea is threatening nuclear war and Japan seeks to double its money supply. Cyprus has set a dangerous precedent by confiscating uninsured large deposits in its top banks, and this could have prompted a rush into gold.

Bank Reserves

Central banks added 534.6 tons to reserves last year, the most since 1964, partly to diversify their currency holdings, according to the council. Barclays forecasts 300 tons of purchases in both 2013 and 2014.

Goldman Sachs Group Inc. cut its three-month price target to $1,530 from $1,615 and lowered its 12-month forecast to $1,390 from $1,550, and said the turn in the price cycle is accelerating as the U.S. economy strengthens.