Wrong on Gold / Silver Bottom – Bull Market Over?

Evident by the strong volume a lot of stops were hit on the way down through $1523 and then $1500. There is a possibility the price reverses Monday back above support proving to be a false break, but I don’t like the chances of such a quick recovery, ideally a false break would have reversed back above support on the same day. So that means likelihood of lower prices (in the short term at least).

The reason for the price slide appears to be the news that Cyprus could be selling their Gold reserves in order to pay back bailout loans (a rumour which was denied by the Central Bank of Cyprus):

Cyprus must sell off the gold, amounting to three quarters of the country’s reserves, to try to meet the soaring costs of its bail-out without any additional help from the European Union and IMF.

The extra financing burden, equivalent to a third of the island’s annual GDP, is expected to push Cyprus into an economic meltdown and takes the cost of the Cypriot bail-out to over 135pc of the country’s economic wealth.

Mario Draghi, the president of the ECB, has told Cypriot government that money from the gold sale cannot be used to reduce public debt but must be used to help pay back €9.1bn in emergency liquidity assistance (ELA) given to the central bank of Cyprus. Telegraph

It will be interesting to see whether this takes place, if so it has the potential to set a precedent and investors are likely fearful it sets off a chain reaction for other Eurozone countries in strife who have significant reserves (Italy & France both with roughly 2400 tonnes of Gold each, Portugal 382 tonnes & Spain 281 tonnes). We will have to wait and see how this develops, but given the number of back flips and changes we saw to the Cyprus “depositor haircut event” I wouldn’t call it a given that they will be forced to sell their Gold. If they are forced, then why haven’t the same conditions already been applied to other Eurozone countries who have received emergency/bailout loans? As opposed to selling it why not just use it as collateral for a loan (given the low rate they would pay for this)?

I study price, not because I believe that price is the be all and end all or like most economic theories that equate it a near-religious meaning. To me it’s just a temporary consensus of a limited number of participants and non-participants and it provides the trigger to my actions as a speculator.

Well put. Perhaps those commentators who think technical patterns are the only factor worth considering need a reminder that the 2008 correction broke through important support which also resulted in a few calling the end to the bull:

At the end of the day I can only give you my opinion, which remains firmly tht the bull market is not over and I expect higher prices for both Gold and Silver in the not too distant future. I will continue holding my positions firmly including the small position I took in SLV Call Options recently (which has dropped to roughly 1/3 purchase price). Granted it’s probably easier to ride this correction out having had my money in the sector for longer than new entrants to the market (we’d have to see 20-30% further correction to take the price back to my average buy levels), but as some capitulate, there will always be smart buyers to pickup the pieces no matter how far it falls:

“I love the markets. I love the fact that gold is finally breaking down. That will offer an excellent buying opportunity. I would just like to make one comment. At the moment, a lot of people are knocking gold down. But if we look at the records, we are now down 21% from the September 2011 high. Apple is down 39% from last year’s high. At the same time, the S&P is at about not even up 1% from the peak in October 2007. Over the same period of time, even after today’s correction gold is up 100%. The S&P is up 2% over the March 2000 high. Gold is up 442%. So I am happy we have a sell-off that will lead to a major low. It could be at $1400, it could be today at $1300, but I think that the bull market in gold is not completed.” – Marc Faber

2013-04-13 19:06:42

Source: http://www.bullionbaron.com/2013/04/wrong-on-gold-silver-bottom-bull-market.html