|
Gold And Silver Prices Clobbered In Anticipation Of General Motors Bankruptcy
 | By Patrick A. Heller, Market Update
April 21, 2009 |
Over the course of last week, the prices of gold and silver were knocked down to multi-week lows. Gold dipped well under $900 and silver below $12.
Gold and silver prices did not fall because of the sudden great economic reports last week. Reported March U.S. unemployment levels rose again to decades-long record highs, for instance.
The pattern in which prices were knocked down indicate that large quantities of gold and silver were sold with the intention of knocking down prices rather than seeking to maximize the proceeds. For instance, on April 16 between 9:37 and 9:40 a.m. EDT, 6,322 gold contracts (632,200 ounces) and 2,208 silver contracts (1,104,000 ounces) traded on the Globex market (an electronic trading platform of CME Group, the owner of the Comex, New York Mercantile, Chicago Mercantile, and Chicago Board of Trade). During this brief time, the price of gold was knocked from $889 down to $883, while silver slipped from $12.56 to $12.35.
The extraordinary amount of blatant gold and silver price suppression last week did not appear to be merited by the events the week. Gold and silver have regularly been hit with price declines to coincide with the release of U.S. unemployment data, but nowhere near to the degree seen last week.
I don't have insider information, but I suspect that the most likely reason for the suppression of gold and silver prices last week was in anticipation of imminent major terrible financial news. Among the looming bad news, the one that sticks out to me is the possible bankruptcy of General Motors, an event the current GM CEO stated as "probable" last Thursday.
The prospect of bankruptcy by General Motors, by itself, would scare some stock and bond investors out of paper assets and into safe havens like gold and silver. However, I think it would be the effect of a General Motors bankruptcy in the rest of the financial market that would wreak greater havoc. If GM declares bankruptcy, that event would trigger defaults on a large number of derivatives held by AIG. As I understand it, the number of affected derivatives is large enough to force AIG into bankruptcy unless the U.S. government (meaning U.S. taxpayers) coughs up more billions in bailout funds. If AIG goes into bankruptcy, that could trigger a domino effect of the failure of a large number of the largest financial companies in the U.S. and other countries.
I had anticipated that the price of gold would reach $1,200 to stay by the end of April. As I write this, that doesn't look likely. I still think the reasons for my forecast are correct, just a bit premature. I now expect the price of gold to hit $1,200 before the end of June.
As is typical when you see significant dips in gold and silver prices, many buyers wait until they see a firm bottom before jumping in to purchase. Physical demand fell off last week, with the result that several premiums declined. Will this be the best buying opportunity from now into the future? Possibly, but we will only know later for sure.
Add to: del.icio.us digg
With this article: Email to friend Print
| On April 21, 2009 Peter said  On April 21, 2009 David said On April 21, 2009 Henry said On April 21, 2009 Jack said On April 22, 2009 Tom said On April 22, 2009 jon said On April 22, 2009 brucewalker said On April 22, 2009 john R. Blair said |
Something to add? Notice an error? Comment on this article. | |