Gold Above $1,000: Indicative of an Imminent Market Fall?

Gold prices sprinted past the $1,000 an ounce mark this morning, and silver climbed even faster to approach $17. But this might also be taken as a warning that investors are about to shift out of stocks which are looking very overbought.

Shares have enjoyed a huge rally in most markets since the lows of March and have been riding for a fall for more than a month. Last week investors also ominously moved money heavily into bonds, depressing yields, and the gold and silver price surge may represent another shift to risk aversion.

$1,000 barrier

Will the gold and silver price rises hold this time? Gold has challenged the $1,000 barrier several times over the past year only to fall back.

If global stock markets now do suddenly take a tumble, correct or crash then precious metals are going to be sold down heavily to meet margin calls, although that will depend on how the players have positioned themselves after the experience of last year.

If that happens it is a great buying opportunity for the precious metals, and even more so for their shares which are leveraged against the ups and the downs of the underlying metals. For the really brave this could be the last big chance to buy junior exploration stocks at bargain levels.

Real gold bugs will be saying that gold has passed $1,000 and that the only way is up. True, it could be that gold surges higher to $1,200 or more over the next couple of weeks and then has a correction and still stays above $1,000.

Parabolic stage?

It certainly will not be a straight line upwards unless gold has entered its parabolic phase and speculation in the yellow metal is not nearly universal enough just yet for that to happen. But it could be starting. The encouragement being given to 1.3 billion Chinese to invest in precious metals does look like the start of this ball rolling.

So if you are not in the precious metals market it is perhaps high time to buy some gold and silver, although for gold and silver equities there might be a better opportunity to come in the market correction that looks inevitable after the 50 per cent plus rallies. Indeed, the very strength of the gold price today is a portent of near term stock market weakness.

Comments

[AndrewBaker:]

I've been saying for some time that gold is the place to be now, and I'm long myself. The stock markets are so overbought and being pumped even higher by the "bigger fool" play, and in my view we're close to running out of fools. So, whether you want to play the stocks game a little longer, or not; stock up on precious metals, with gold a big part of it.

Sep 08 06:36 AM

[sarge 907:]

I would have agreed with Andrew had he only substituted silver for gold.

Sep 08 09:44 AM

[blacksilver:]

I don't see gold hitting 1200. in the next coulpe of weeks,but it will before the year is out.Either way it will get there and drag silver with it.

Sep 08 10:04 AM

[Mad Hedge F...:]

oyu. Just as it is prudent to top up your flood insurance ahead of the hurricane season, investors are loading up on gold ahead of the treacherous September-October stock trading period. Yesterday’s $22move up shows that attempt number six to run the yellow metal up to anew high has begun. Silver happily tagged along for the ride, tacking on 70 cents to $15.49. Historically, September is the best month of the year to own the barbaric relic, showing an average 3.5% gain over the last 20 years. The onset of the Indian wedding season, Ramadan, and the run up to the Christmas and the Chinese New Year jewelry buying binge are all conspiring to give gold a boost. A tip off this was coming wasthe big put selling seen for the shares of the gold ETF (GLD), and Kinross (KGC). One good way to play gold at this late stage might be the shares of highly leveraged unhedged producers like Rangold Resources (GOLD), Jaguar Mining (JAG), and royal Gold (RGLD).Confirmation that the markets are moving towards risk aversion can be found in the euroyen chart, which hit a one month low at 131, after double topping at 140.50. If gold does break, it could tack on 20% very quickly to $1,200. Load up on those American gold eagles. If you wantto know where to find them in size, check with the experts at millenniummetals.net by clicking here.

Sep 08 10:13 AM

[5142152-337:]

$1000. GOLD? It's JUST a number! I remember the first time I heard that. I thought, "yeah, right". But, its true. When its at 2200, what will 1000 be then? So, hang on. Those that haven't ALREADY stocked up on gold and silver...the physical kind, of course, jump in, the water is fine.

Sep 08 11:03 AM

[tunaman4u2:]

Gold hitting $1000 per ounce is indicative of...
Panic of holding the US dollar!
China pulling its gold from London

Why this has to correspond to a market crash is ill defined...

Panic in the dollar... will the government fix this panic & hold it up like FRE, C? Not likely...

Sep 08 11:05 AM

[Jason Tillberg:]

Write downs? Where were they last quarter? You have some 13% of total mortgages delinquent, yet banks didn't have much write downs.

Soon, 50% of all mortgage holders will be underwater. Completely broke and earnings less money than before if they are lucky to have a job.

When the write downs come, I suspect the dollar will rally as people scramble to get dollars to pay down their debt.

The debt is still there. Equity can easily evaporate and I suspect at some point, we will see a massive liquidation and monster crisis.

I put time frame between now and as late as end of 2012.

Sep 08 11:16 AM

[Mike Kane:]

I never got the hangup with $1,000 gold (or other psychological investing barriers)...adjusted for inflation its a tiny number...Gold can easily hit $1500-$2000 over the next few years

Sep 08 11:36 AM

[NUCLEAR1929:]

i think it have reasoning but i doubt when market will crash again, gold will go up
lets live and see

Sep 08 12:15 PM

[MarvinMBA:]

Great buying opportunity for silver...I like SLV which follows silver and seems very liquid which is what you want...narrow bid and asked...MarvinMBA

Sep 08 01:36 PM

[Bill S. Friend:]

Silver futures are at $16.41/troy ounce. The silver to gold ratio is 60.76:1. earlier this year it was about 77:1. If gold continues to rise and the silver to gold ratio continues to narrow silver could be a smart bet. Silver is being used a ta faster rate than it is being mined. My advice is to buy silver before it goes parabolic.

Sep 08 01:45 PM

[Madcow2:]

Gold will fail before it gets to $1033 because the Federal Reserve is DEAD. They are no longer capable of "inflating" the money supply or the economy. The game is over.

Think of a film of a nuclear explosion ... at first, you see a house, some trees, a parked car - and then a wave coming in left to right blowing the car away, taking the house off its foundation, bending the tree like a twig to the right ... (think 100 years of inflation).

Then, everything is still for a moment. And the, the concussion wave comes back the other way and blows everything right to left as the vacuum is filled and balance restored (think decades long deflation).

In our system, debt is money. So as debt is destroyed, so is money. Smart rich people may have exchanged their fiat for gold - but where is everybody else going to get cash to buy in? Outside of government and a handful of lucky banks, the money supply has vaporized.

Sep 08 01:56 PM

[David Shane:]

As for gold going higher - didn't I read that someone bought 45,000 options call contracts for March for GLD at $120? (I don't have a link, but perhaps someone can confirm.) Lot of money betting it's going higher.

Sep 08 02:00 PM

[xmplary:]

Stocks may be over bought, but could it be possible that the Gold too is over bought and another bubble? Could it be that its overbought as well? Reminds me of a Twilight Zone episode!

www.veoh.com/browse/vi...

Sep 08 02:04 PM

[diageek:]

I have some questions which remained unanswered

Gold is traditionally considered as a safe haven bet. but with stock markets the world over and especially in ASIA , regaining new 2009 highs why is the safe haven required ?

if the markets ( both the commodity and stock) are so confident of a V shaped recovery why are market participants pumping so much money in precious metals ?

i fail to buy up the argument that the worst recession since the great depression is gonna be over in a flash given the mad rush that gold seems to be in ?

the two scenarios that justify everyone falling over other to buy gold are :
1 Devaluation of the GREENBACK !!!!!
2 inflation of the sorts never experienced before so that everything of value will rise everywhere so that keeping a track of the monetary prices will be a futile exercise. and the only standard will be gold !!!

comments please

Sep 08 03:26 PM

[montyman:]

If the Fed is dead then where are they getting the ability to continue pimping up the banks, markets, bailouts, etc. etc. ?
On Sep 08 01:56 PM Madcow2 wrote:

> Gold will fail before it gets to $1033 because the Federal Reserve
> is DEAD. They are no longer capable of "inflating" the money supply
> or the economy. The game is over.
>
> Think of a film of a nuclear explosion ... at first, you see a house,
> some trees, a parked car - and then a wave coming in left to right
> blowing the car away, taking the house off its foundation, bending
> the tree like a twig to the right ... (think 100 years of inflation).
>
>
> Then, everything is still for a moment. And the, the concussion wave
> comes back the other way and blows everything right to left as the
> vacuum is filled and balance restored (think decades long deflation).
>
>
> In our system, debt is money. So as debt is destroyed, so is money.
> Smart rich people may have exchanged their fiat for gold - but where
> is everybody else going to get cash to buy in? Outside of government
> and a handful of lucky banks, the money supply has vaporized.

Sep 08 04:30 PM

[BlackyBlack:]

I've been waiting for someone to ask that question. The write downs ended pretty much as soon as they started, which makes me think they can't take any more writedowns. So they writedown 1 trillion and change and sell the rest of the worthless paper to the Fed for fat dollars.

My guess is they are feverishly trying to finish that project before someone asks the question - where are the writedowns. So then they can say, writedowns? Who needs writedowns.


On Sep 08 11:16 AM Jason Tillberg wrote:

> Write downs? Where were they last quarter? You have some 13% of total
> mortgages delinquent, yet banks didn't have much write downs.
>
> Soon, 50% of all mortgage holders will be underwater. Completely
> broke and earnings less money than before if they are lucky to have
> a job.
>
> When the write downs come, I suspect the dollar will rally as people
> scramble to get dollars to pay down their debt.
>
> The debt is still there. Equity can easily evaporate and I suspect
> at some point, we will see a massive liquidation and monster crisis.
>
>
> I put time frame between now and as late as end of 2012.

Sep 08 07:51 PM

[ron_paulite:]

i am bullish on gold long term, but i don't understand why analysts and other experts always like to come out and ask people to buy gold after it has risen so much so fast.

the best analysts are the ones who ask you to buy when nobody is buying and to sell when nobody is selling.

Sep 09 12:59 AM

[DanH-USA:]

wouldn't an energy-based recession devalue gold as well (in the short-medim term)?

Sep 09 06:32 AM

[ebworthen:]

YES

Sep 09 12:59 PM

[Ron2008:]

$1200 gold in the next two weeks? Only if Barrick decides to keep buying futures to get out of their hedges at a stupidly high pace and cost themselves billions.

Sep 09 04:23 PM

[rosey99:]

I have to confess that when financial assets of all classes rise in price at the same time (stocks, debt, commodities) in a low interest rate (ZIRP?) environment, I feel like it's 2007-2008 all over again. So much liquidity and so little time.

I don't know how long this can last (past my insolvency?) but fundamentals really suck. Gold may continue to rise, but we have seen before how gold, stocks, and private debt (debt) can all decline together, and rapidly too. The perception of risk is a tricky thing, and gold is very, very volatile.

Sep 09 07:25 PM

[fleeing omega:]

rosey, i think we are of a like mind on this.

the current situation is wacko, and it is pretty weird to see all asset classes taking off at once in the face of a dismal economic prognosis, fiscal stimuli of all sorts notwithstanding.

reminds me of a plane, climbing higher, the angle of attack steep, the engine groaning and a stall would seem to be appoaching. what's going to keep this thing airborn from here? more euphoria? more coolaid? more QE?

if the market corrects, PMs should sell off to cover margin, as noted by several. i am looking to get back into silver, but not at what i see as a temporary peak.

On Sep 09 07:25 PM rosey99 wrote:

> I have to confess that when financial assets of all classes rise
> in price at the same time (stocks, debt, commodities) in a low interest
> rate (ZIRP?) environment, I feel like it's 2007-2008 all over again.
> So much liquidity and so little time.
>
> I don't know how long this can last (past my insolvency?) but fundamentals
> really suck. Gold may continue to rise, but we have seen before how
> gold, stocks, and private debt (debt) can all decline together, and
> rapidly too. The perception of risk is a tricky thing, and gold is
> very, very volatile.

Sep 09 11:39 PM