Please explain volatile prices

[Merlin]

I'm a newbie to the field of precious metals, so please excuse me if my question seems naive; but what market forces work to cause the price of gold to drop $7 an ounce in just 60 minutes?

[FoundingFathers]

Merlin,


Good question. I can answer it in one word "intervention". That's when Governments manipulate markets to serve some asinine policy. Manipulating markets is illegal, unless of course you are a Government. Today was a perfect expample.

[kleinphi]

How about this for a perspective: Gold is money. There is a form of gambling called "investing". It basically works like this: The central bank issues tickets (in America they are called Federal Reserve Notes). These tickets can be used to buy different other kinds of tickets, which all aim at returning a greater amount of your original tickets the longer you keep these new tickets. They are called securities and can represent equity in certain organizations or just a promise by them to pay you a certain amount of original tickets after a certain time. The government (We The People) has chosen to make the original tickets money. This is of course just a definition, and the only real money is still gold. The game people are playing is this: The longer you play with the different kinds of papers, the more you can win (in paper). In order to cash out, you have to buy gold. We all know that from time to time everyone wants to cash out, and since the gold supply is limited, only the first ones will be served, and the rest will be left sitting on worthless paper. The volatility we are observing in the gold market is often caused by a certain number of people thinking it's time to cash out, then after a few minutes, days, or months, they change their minds and want to gamble a little more. Of course, all it takes to make people want to cash out is for someone to say there might be a problem like a "terrorist attack" or a big player might want to cash out soon. Then a few people will have had enough of holding paper and will cash out. That's when the gold price spikes up. As soon as it has spiked enough, new gamblers are attracted to paper, because they can buy it cheap, and maybe the guy who has been claiming a big player might be selling soon changes his story and denies ever having said anything. That's when those who have just bought gold get scared of "missing an opportunity" and re-enter the paper "casino", which causes the price of gold to drop.

[AuNuggets]

I think you can look directly into the currency markets to explain today's specific volatility in the metals. The dollar was tanking early on, causing the inverse rise in the Euro. Once the Euro got very close to the (all time) high, German buyers entered the market, selling Euros and buying Dollars. The metals reacted to the currency play just as they have during the majority of the most recent "bull market".

Watch the currencies....... they are still the dog that's wagging the PM tail. Dollar down, metals up, and visa-versa. Nothing as far as technicals OR fundamentals are showing anything different at this stage in the game, but that could change at any time.

But make no mistake, the metals are still "controlled".