Gold gets slaughtered as deflation fears arise
Prices plunge as economic turmoil in Europe and the US sends investors piling into cash.
Gold prices sank Monday with investors opting for cash as the congressional supercommittee failed to deliver and deflation fears jumped to the foreground.
Gold (-GC) for December delivery tanked $46.50 to settle at $1,678.60 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,727.40 and as low as $1,670.50 an ounce while the spot price was losing $50, according to Kitco's gold index.
Silver (-SI) shed $1.30 to finish at $31.12 an ounce while the U.S. dollar index was up 0.4% at $78.30.
Gold prices were in free fall Monday as budget talks in the U.S. broke down and as borrowing costs for Spain soared. A new conservative government led by prime minister Mariano Rajoy wasn't helping alleviate Spain's 10-year borrowing costs, which were climbing to more than 6.5%. The euro was falling against the dollar, which was pressuring gold by making the dollar-backed metal more expensive to buy in other currencies.
Gold also plummeted past the key support level of $1,680 an ounce with options expiring on Tuesday, which can trigger a lot of rebalancing and more volatility.
"It looks like the $1,680 area is the biggest open interest," said Stephen Eubanks, director of institutional sales trading at Mr. TopStep. "I don't think that there is any time where you can say it won't be volatile . . . you need a seat belt to trade this stuff." The gold ETF, SPDR Gold Shares (GLD), however, actually added 4 tons on Friday, which signals that a lot of the downward pressure on gold is coming from the futures market.
Further complicating matters for gold is the reality that the U.S. debt super committee, charged with slashing $1.2 trillion from the deficit over the next 10 years, most likely has failed. The Dow Jones Industrial Average ($INDU) was down more than 300 points and investors were dumping gold for cash, fleeing to the perceived safety of the U.S. dollar.
There are worries that a failure to reach an agreement might open the door for another downgrade of the U.S.'s credit rating, as Standard & Poor's cited dysfunction in Washington as a main reason for its negative outlook. During the week after S&P issued its first-ever downgrade of the U.S. at the beginning of August, gold rallied almost 5% on haven buying, but for now the need for cash is winning out.
"It's viewed as a safe haven as a dollar-denominated asset," said Eubanks, "but it doesn't mean it can't go down." Eubanks said there are a lot of investors and traders in the market looking for an upside move, which means they might be the first to bail out when prices tank.
Jim Cramer, on the flip side, wrote that now is the time to stay invested in gold and to be buying. "Yes, it is true that a severe recession in Europe is bad for gold, but we had one here and how did gold do? It went up, not down," he wrote.
Investors dumping gold for cash signals that deflation is more a concern than inflation. Investors fear that the European Central Bank won't be the lender of last resort, that Europe will slip into a recession and that automatic deficit cuts in the U.S. along with the expiration of the payroll tax cut and unemployment benefits will also trigger a recession. Societe Generale wrote that losing stimulus could shave 1 to 1.5 full percentage points off of growth in 2012 and that automatic spending cuts could reduce growth by half of a percentage point in 2013.
With dismal growth forecasts, gold is less attractive to own. However, David Morgan, founder of Silver-Investor.com, said he sees a rally starting in the first quarter of 2012 as inflation winds up trumping deflation.
"I am pretty convinced that this is going to be an inflationary bailout and that we are going to have to get back into the market in all sectors," Morgan said.
In the meantime, he is bullish on gold unless prices break below the $1,550 level, and thinks that gold will find some meaningful buying in the $1,600 area as gold bulls buy at "discount" prices.
Gold mining stocks were getting pummeled with broader equities Monday. Barrick Gold (ABX) was sinking 2% to $47.88 while Newmont Mining (NEM) was down 0.8% at $64.91. Goldcorp (GG) was falling 2.3% to $49.40 and Randgold Resources (GOLD) was tumbling 4.3% to $106.21.
A drop of 2.3% is considered 'Slaughtered'? Really. What is 4% then? Manured?
Love the continual over-reacting by these cow-brained journalists writing content that doesn't even deserve to be used as floor covering in the barn.
I guess when all of the manipulators have finished shorting the market this week to make their millions, look for the recovery (I guess gold will be "resurrected") next week as they buy back to cover their short positions.
When gold drops $400 in a day, then slaughtered may be a more appropriate description.
I'm sorry, but I just don't see how the "super-committee" failure is such a big deal. Everyone with a brain should have expected that the spending cuts were not real. That leaves tax increases.
Regardless of your economic leanings (supply-side v. Keynesian), you have to figure that any tax increases would be a disaster.
Going forward, we're supposed to have defense and Medicare cuts. Does anyone believe that either of those are actually going to happen? Remember, they don't start until 2013. Why do you suppose that is? Realists would conclude that a year is needed to rescind them.
As for our credit rating. Only a rating agency could downgrade our credit rating. All our debt is payable in dollars. We can print however many trillions it takes.
$hit, its over inflated way more than that. It could go another $700.
I love how they trash gold and other commodities.
Tomorrow, next week, whenever....they will praise it equally high to the skies when inflation fears rise.
Gold and silver are continually bought and sold as it is one of the few commodities from which ready cash can be had when needed. Give credit for its liquidity.
These reporters and their rhetoric are pathetic, readers.
Gold and Silver belong in strong hands, they always have. its the futures traders that drop the prices when they sell off for a few quick bucks. This in turn allows the long term bullion holders to buy more. gold is not volitile, the mentality of the people trading it is whats volitile.
Who are these people that write these types of articles?
Do these people really believe that because they say it, it is true?
"Gold gets slaughtered "
"Prices plunge "
"Gold prices sank "
"Gold prices were in free fall "
Ummm gold dropped 2.7 percent.
I dunno, new math?!!?
"Gold mining stocks were getting pummeled with broader equities Monday. Barrick Gold was sinking 2% to $47.88 while Newmont Mining was down 0.8% at $64.91. Goldcorp was falling 2.3% to $49.40 and Randgold Resources was tumbling 4.3% to $106.21"
This has been the daily MSN homepage stock brief for about the last month
Stocks plunge on Europe worries –then the next day
Stocks explode on Europe outlook –then the next day
Stocks plunge on Europe worries –then the next day
Stocks explode on Europe outlook –then the next day
Rinse and repeat.
Is it that they just hire anyone to fill the web with text?
I'm back to my post 9/11 habit of limiting my exposure to "media news"
I'll offer my "modest proposal" again.
Cap spending at 20% of GDP.
In return, the Democrats can write the budget and the tax code any way they want. At the risk of overestimating Congress, let's assume that the Democrats are smart enough to realize that a healthy economy will allow them to spend more to buy more votes from their constituents.
If Theres a Middle east Conflict in the Near Future
Invest in 1990 -1998 Geo Metros that net 50mpg at $2000 a pop
Before gasoline spikes to $7.00 a gallon after the Suez Canal gets Trashed
You'll tripple your money in 6 months
I believe many of the posters on here have a better grasp on our economy than MSN.
Commodities had a correction today, nothing more, nothing less. It is difficult to participate in currencies and markets with the excessive manipulation that the nice government men are/have been doing for so long. They put pressure on the market one day to drive it down only to reverse positions the next day and ride it up.
Each time a banking organization reports profits of 2 to 6 billions dollars it was done by manipulating the markets/currencies/commodities. The little investor is the one holding the empty bag at the end of the day.
All fiat currencies will eventually fail. How many dollars will you be holding when that happens is the only question you should be asking yourself.
Wake Up America
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[BRIEFING.COM] The major averages ended with solid gains as the S&P 500 rose 0.8%.
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Although the story reiterated the need for improved economic conditions, and did not contain any new revelations, the mere ... More
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