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Old 03-09-2013, 02:15 PM   #1
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Gold Price Drop in 2008 to repeat?

When the stock market crashed in 2008, gold immediately lost dollar value, (due to people cashing in on other assets to support their positions?)

Is this likely to happen again when the equity markets crash this time around?

If not, why not?

Thanks in advance...

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Old 03-09-2013, 03:09 PM   #2
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Originally Posted by AgNostic View Post:
Is this likely to happen again when the equity markets crash this time around?
In one word, yes.

When margin comes due, anything and everything will be sold to meet the margin calls. That includes gold and silver.

The lesson? Don't use margin. When others get zapped with margin calls, you will have money to snap up the bargains that they are dumping.
If you keep doing what you are doing, You will keep getting what you are getting.
If you don't like what you are getting, You must change what you are doing.

GOLD is the money of KINGS.
SILVER is the money of GENTLEMEN.
BARTER is the money of PEASANTS.
DEBT is the money of SLAVES.
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Old 03-10-2013, 07:38 AM   #3
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I don't think that the impact would be similar for three reasons:

1.) We didn't have QE expectations in 2008. When stock markets crash (significantly), everyone waits for moar QE. That's gonna support gold.

2.) Leverage in the gold market is already at 2008 lows, so there is not gonna be much marginal selling to cause massive drops.

3.) I don't think that bonds would be seen as the safe haven like in 2008, because the next big (30+%) stock market crash is likely to be caused by either rising interest rates or geopolitical events (war, China launching a financial attack). In these cases, there is nowhere else to run but commodities. If the US bond market were to collapse, the dollar wouldn't be on the bid. I think we're gonna see a repeat of 2011 therefore, but with more extreme moves in stocks and gold. My guess is that we'll see the Dow/gold ratio make a bottom during such an event.
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Old 03-10-2013, 08:04 AM   #4
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Hey Guys...

Many thanks for your responses....

I can see both sides of the argument... I definitely think there will be some liquidation of precious metals as people need to meet shortfalls in other markets. How much the price of PMs fall I guess depends on how much Central Banks and individual investors are ready to jump in and take advantage of drops in the price. On recent evidence there seems too be quite a bit of support when prices look like falling, but in the pressurised situation of a stock market crash, people may take their eyes off the ball somewhat..

Either way, it seems like PMs are still good value now, and may well go higher before a stock market crash... trying to buy at the crash bottom probably represents a very risky policy, especially given the consequences of the bursting of such a wide number of economic bubbles (Stock markets, currencies, bonds etc).

We may regret not buying physical at these prices while we still can... and ultimately that regret has the potential to be much bigger than the regret of missing out on the ultimate bottom after the crash, especially whiie PMs remain as undervalued as they are today.
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Old 03-10-2013, 09:57 AM   #5
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I've only heard one talking head say gold could crash below 1500.
Other's comments here I think are more to the point, and as I read the charts, we're in at least a local bottom now - and I'm buying phys - not backing up the truck, but some - call it a 2% of (total) portfolio purchase.

DoChen DCA's, and it's a wise move for a longer term. That way, if this was the bottom, you didn't miss it all - but if there's a steeper drop, you don't miss that either, and it all works out on average. Just don't put your last dime (much less leverage) into a single trade unless you know how to gamble and can accept losses.

Spread it around - get some now, get some later.

I myself trade paper, and use profits to stack phys. Works for me.

Edit - SA, leverage in gold might be low, but leverage is at an all time high in other things. I think people were thinking (and I think, correctly) that if they get margin calls on their JCPenny or some other crap - they sell their gold. Could be the situation.
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Old 03-10-2013, 01:12 PM   #6
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As DCFusor sort-of wrote in my case, I buy when I feel like it (and have some money), but it essentially IS "dollar cost averaging".

I have kind-of given up predicting things, mostly short-term things but now even medium-term... Two books that have influenced me a lot (and that I highly recommend) are:

N N Taleb´s Antifragile

Nate Silver´s The Signal and the Noise

Both are new and in bookstores near you. Both say that most predictions suck, for similar and different reasons. I am only about 2/3rds the way through Silver´s book, but it has been great so far.

The BIG take-away I got from Taleb is to identify your risks and/or vulnerabilities and then to plug those holes!

Rather than try to predict a Black Swan or anything else...
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Old 03-10-2013, 01:20 PM   #7
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It very well could. For me, the moral of the story is: stack phyzz but keep cash incase gold goes on sale near-term. Long-term, gold is going to win, just like it always does (you can only cheat reality for so long, even if you are an international consortium of central banks).
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