posted on Nov, 27 2009 @ 10:39 AM
Well, as I write this - about 11AM EST on Friday - gold has recovered from a low of $1135/oz to $1170/oz. And it wouldn't surprise me to see it
nearly even again by the market close.
The gold market sold off today some as greedy profiteers relied on computer programs to retain their profits. Its called a 'stop-loss' sale. Here's
how hit works. Let's say you bought gold at $1000/oz, thinking it might go up. So as time goes on it starts to creep up - 1040, 1050, 1060, and so
on. In order to ensure that you keep your profit you enter a Stop-Loss into your trading account, that generates a sale of your gold position if gold
starts to sell-off and hits $1050/oz. That allows you to lock-in your 5% profit, and the seemingly cool thing is that you don't even have to be
there. You could be playing golf, taking a nap, or even be on a remote island vacation. Its an automatic sell when gold hits the price you specify.
SO in our example above, gold doesn't sell off right away but instead keeps rising into the $1100s. So Mr Greedy wants to keep collecting his golden
eggs as long as the goose will lay. So he simply adjusts his Stop-Loss order daily and moves it up to $1100/oz, and then $1120, and so on, until we
find ourselves to the day prior to Thanksgiving 2009 with gold sitting at $1190/oz. Mr Greedy sets his Stop-Loss at $1180 and goes off to see the rest
of his piggy family for Thanksgiving. And since he had the good fortune to invest in gold, he has much to be thankful for.
All of a sudden Dubai announces they want to POSTPONE some debt payments as the global economy has seemingly cooled the rich folks desires to buy
multi-million dollar condos in the Persian Gulf on a man-made island that looks like a Palm Tree from the air. And of course maybe last year's Chanel
purse will just have to do, and so they don't spend that $4000 their last trip to Dubai for a new Chanel bag. And so on.
World markets begin to fear that this is the tip of the ice-berg and that all countries may start to default on thier debts, or promised debt backing.
So they start to raise cash, as a defense against this possible market collapse. Stocks get hammered, and people begin to sell, which causes others to
sell, and so on. In fact, some of the folks have bought on options in which they are leveraged 20-1. So they get a call from their broker saying
'Hey, you now owe us another $50K or we will have to sell your options at a permanent loss of $1 million. So to raise the cash, some may sell some of
thier physical gold or gold options which have done really well over the last few months. And this causes the gold price to fall.
Now, the ignorance in all this, is that the one place you probably want to be in a market collapse that involves governments defaulting on debts is
GOLD. Only gold has international value, apart from the doings of any government. Because Soviet Rubles, Reichsmarks, Louis d'Or, Deanarii, and even
dollars may come and go, the really smart guys figure out that gold is a good place to be.
And so on the moring after Thanksgiving, the world has changed. Mr Greedy is seeminly relieved that he locked in his gold profits at $1180/oz, as are
many others. Then something curious happens. Gold starts to rise again, quickly, busting back up towards the price it held the day before. Until
finally its back even, and Mr Greedy and others like him are trying to figure out what the hell just happened.
Its called a 'shake-out'. It means that that all the gold investors that were just in for a quick profit, took the money and ran. This leaves the
holders of gold as those who believe gold has much farther to move, or new investors in gold who are thankful for the Thanksgiving day sale on gold,
so they had a chance to buy-in before it got way too high.
We have just had a small taste of what the future will bring. This will happen again and again. And each time, GOLD will remain.