It’s the Old Sell-Gold-to-Cover-Stock-Losses Play
July 26th, 2007WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
Some of you will understand this:
Story #1: Dow Leads Global Selloff on Credit Woes:
Wall Street suffered its second-biggest plunge of the year Thursday, leading global markets lower as investors fled stocks amid increasing uneasiness about the mortgage and corporate lending markets. The Dow Jones industrials fell more than 350 points, while Treasury yields plunged as investors moved money into bonds.
Investors who had been able to shrug off discomfort about subprime mortgage problems and a more difficult environment for corporate borrowing appeared to finally succumb to those concerns. The Dow’s drop is the biggest since it plummeted 416 points on Feb. 27 after a nearly 10 percent decline in Chinese stock markets.
Feeding the selling were concerns that higher corporate borrowing costs will curb the rapid pace of takeovers that have driven major indexes this year. Investors also feared the sluggish environment for home sales and continued defaults in subprime loans would spur debt defaults and weigh on corporate earnings.
Story #2: NY Gold, Silver Fall Sharply On Liquidation:
Recent long liquidation continued in gold and silver futures Thursday, withtechnically oriented selling accelerating the declines, analysts said.
They cited profit-taking in connection with the sharp loss in U.S. equities, plus an unwinding of so-called carry trades. Market watchers also cited general risk aversion. One added that Comex gold and silver options expiration appeared to add to the selling pressure.
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Are you buying now?
Yep. I buy small amounts (if you knew just how small, you’d laugh) during gap down times like this, when the stochastics slap the mat. HA
$650 seems like a pretty good support. But, you must remember, I’m not a gold speculator. I’m not trading on leverage. I’m a long term accumulator of small amounts for cash hedging purposes.
“They cited profit-taking in connection with the sharp loss in U.S. equities…”
Not-so-rhetorical question:
If selling when the market is falling is known as “profit-taking”, why isn’t buying when the market is rising known as “loss-taking”?
Nice to know you’re buying small amounts Kevin. I tend to go way over the top. Maybe its time to chip away at Mom’s bond stash one thousand at a time (no stocks). Yep, that’s WAY small for me. Don’t laugh. Please.
the problem with metals at this point isn’t the metal itself, it’s all the paper floating around out there that calls itself metal. once the paper crashes, the real asset will prominently reassert its value relative to everything else.
I have a dumb question – maybe Kevin or someone can help me with it.
My gold dealer explained that gold is essentially a constant store of value – that 1OZ of gold had pretty much the same buying power in 1920 as in 2007. This seems to make sense.
However, in a crash scenario, when paper would be near worthless, surely the purchasing power of gold would rise, if it was the only meaningful currency? I’d imagine that in a depression scenario, people would be willing to sell property, land, etc, for vastly reduced amounts relative to metal than they ever would today.
“Gold is a horrible investment.” (Told to me in 2000 by a ‘financial adviser” when the price of gold was ~$270 an ounce. Gimme a time machine and a baseball bat…
@ dermot,
See the comments on:
Money: Going Tactical
https://cryptogon.com/?p=548
I thought that the best suggestions for post crash “currency” were booze, tools and guns.
The reason is pretty simple: Most people don’t own gold. In a hard crash, the question becomes, who’s going to be making a market in gold?
You wrote:
I’ve thought about this. If the whole show crashed tomorrow and someone offered me gold for one of my cows, there’s no way I’d take the gold. What would I do with the gold? I can’t eat it. It’s pretty worthless to me in a hard crash situation.
I think “investment” will have a much different meaning in a hard crash.
More discussion here:
https://cryptogon.com/?p=525
Definitely on the desirability of property and food over metal. As I told on of the people on my forum, I’d love to have land and tools over gold and silver – but in my current position I’m in no position to make landfall.
I use PM as a hedge against a depression scenario, in which there would be some form of economic activity, as opposed to a Mad-Max timeline (in which case a barrel of oil or a cow might be a more useful item).
I don’t know if a Depression worse than 1929 would be described as a hard crash or soft crash…
I’ve been expecting some kind of blow-out long before the I found out about Peak Oil – back in the 90s I thought it would be a derivative collapse…which may still occur of course.
Meanwhile, I watch the real estate bubble collapse (it’s happening in Ireland too, thank God…property is falling at 10K a year there).
Sorry if I sound disjointed; the humidity here is putting me to sleep.
In case of a crash, here is what I would suggest, in order: land (already living on, preferably with water running through it and in a more or less remote area), house you own or build–as small as you can stand, food growing apparatus (including livestock, and a few beehives would also be nice), vehicles you maintain yourself older than 1998 or so when they started putting tracking devices in them, guns, stored gasoline, stored food (even MREs) and definitely water, a gas/electric/other generator to run just your frig and your water well, and finally, silver with gold for big purchases. Unless you are allergic (as I am), a few horses would also be nice.