August 15, 2022

Panic Selling Crushes Gold and Silver Prices – Bearish Sentiment Reaches Extreme Levels

goldThe precious metal markets, which have been under a constant drumbeat of negative news and bearish price forecasts for months, sold off sharply today.   Bearish investors seemed to reach the “give up” stage as gold and silver fell below key technical levels.  Panic selling continued to cascade throughout the day as precious metal investors hit the sell button and buyers stepped aside.

By the end of the trading day, gold dropped an astonishing $84 per ounce to close at $1,478, down over 5% on the day and below $1,500 per ounce for the first time since July 5, 2011.   Silver had an even worse day with a price decline of 6.5%, closing down $1.81 per ounce at $25.95.

Analysts had multiple reasons for the huge decline in gold and silver prices including the belief that inflation will remain subdued and the Federal Reserve would begin to slow the pace of monetary stimulus later this year.  In addition, many trend following investors are repositioning out of precious metals into other investment opportunities such as stocks which have appreciated by over 100% since the depths of the financial crisis.  By contrast, gold and silver  have been unable to breach highs reached in mid 2011.

Also weighing on investor’s mind was the fear that the proposed sale of over $500 million of Cyprus gold reserves would further pressure gold prices.  Comments in the Wall Street Journal suggested that other countries may also be forced to sell their gold reserves.

The news about Cyprus “gets people to wonder: Will there be central-bank liquidation of gold when other countries get into trouble?” said Adam Klopfenstein, senior market strategist with Archer Financial Services in Chicago. “Selling gold might be the new caveat for any future [bailout] deals.”

The match that ignited the explosive move to the downside was struck on Wednesday when Bloomberg reported that Goldman Sachs predicted sharply lower gold prices and suggested that investors actually short the gold market.

The turn in the gold price cycle is accelerating after a 12-year rally as the recovery in the U.S. economy gains momentum, according to Goldman Sachs Group Inc., which reduced forecasts for the metal through 2014.

The bank cut its three-month target to $1,530 an ounce from $1,615 and lowered the six- and 12-month predictions to $1,490 and $1,390 from $1,600 and $1,550. Goldman recommended closing a long Comex gold position initiated on Oct. 11, 2010 for a potential gain of $219 an ounce, analysts Damien Courvalin and Jeffrey Currie wrote in a report today.

“Despite resurgence in euro-area risk aversion and disappointing U.S. economic data, gold prices are unchanged over the past month, highlighting how conviction in holding gold is quickly waning,” the Goldman analysts wrote in the report. “While higher inflation may be the catalyst for the next gold cycle, this is likely several years away.”

Goldman cut its 2013 gold estimate to $1,545 an ounce from $1,610, trimmed its 2014 forecast to $1,350 from $1,490, and set year-end targets of $1,450 in 2013 and $1,270 in 2014. Goldman recommended starting a short Comex gold position, targeting $1,450 with a stop at $1,650, the analysts wrote.

Ironically, the biggest worry for gold and silver investors now comes from the precious metal ETFs, which greatly contributed to the precious metals bull market as investors poured billions of dollars in the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV).  If investors in the GLD and SLV initiate panic liquidations, a sharp rebound in gold prices may be wishful thinking despite today’s huge sell off.  According to Goldman Sachs,  “The fall in prices could end up being faster and larger than our forecast, as aggregate speculative net long positions across Comex futures and gold ETFs remain near record highs.”

COURTESY: STOCKCHARTS.COM

COURTESY: STOCKCHARTS.COM

COURTESY: STOCKCHARTS.COM

COURTESY: STOCKCHARTS.COM

The bearish sentiment and price action on gold and silver seemed to have reached extreme levels.  Does anyone hear a contrarian bell ringing?

Comments

  1. I concur with thie article about gold, especially in the short term.
    However, silver’s industrial use will eventually push it to a 1/15 of gold’s index.
    I see silver @ 60 & gold @ 1200 by 2014.

  2. Where is the physical silver. My normal sources are sold out!

  3. Yes Contrarian bell is ringing loud ! We have a disconnect. The leading online dealer is buying junk silver for 3-4 over spot price, thisis unprecedented. They just ran out of their largest bags (1000 face values ag over 20,000 each) they sold out despite a 4 dollar over spot price! One of the other largest dealers Is out of additional products daily. Very little , everything marked sold out. This is reaching levels like in 2008 . Just prior to what? It set off a run from 8or 9 to almost 50.
    Same thing today developing : Major major shortages, delays, surge in premiums . eBay for last two weeks , single eagle sale auctions winning bids are 36-38. Seems the real market has a different idea of what price is. Only today the demand is much more then 2008! We are seeing eagle sales shatter records even with halts in production by mint and rationing. Look for this months sales to be yet another record. I heard we have sold more in eagle sales (just one product) then the entire silver production of the our entire country in the same time frame. Keep stacking people you are being presented with the gift of a lifetime. (as a side note as if things weren’t bad enough rio tinto mine has just suffered a massive landslide which just vaporized 16% of US production) this combined with Cyprus, Japan , 20 trillion dollar debts soon on horizon give new definition to “a perfect storm” . Batten down the hatches and buy some silver and break the paper markets back. As the disconnect moves further the comex will be wiped out and the price have a major reset when the world figures out they are trading paper daily that doesn’t exist . Billions and billions and billions of paper ounces tha dont exist in physical form. So buy a little silver and and break the back of the paper (market) game. We have a similar set up just prior to the 500% run then, and all the negative sentiment and bashing on tv is a contrarians dream.

  4. Justin smith says

    I agree with g silver. Don’t be fooled by the attempts at market manipulation! Once people finally realize that they are buying and selling silver which doesn’t exist, buyers will demand physical silver, but there will be not nearly enough to satisfy even close to the amounts that are owned in paper (silver etfs)! It’s simple supply and demand ! Look for triple digit silver in 2015! My best guess.

Leave a Reply to S. Cancel reply

*