Gold Fell to $1,400? Welcome to the New Gold Rush!

With everyone talking about how the great gold boom is over, that with the price of gold tumbling to $1,400 an ounce the back of the yellow metal as a safe-haven investment  has been broken, you might be surprised to learn there's actually a new gold rush going on. With every drop in the price of gold (and silver, too), individuals are buying as much of the precious metal as they can.

According to the former assistant secretary of the Treasury under President Reagan, Dr. Paul Craig Roberts, the price collapse was an orchestrated attack on gold and silver coordinated by the Federal Reserve. The assault saw prices plunge an unprecedented 10% in one day at one point.  SPDR Gold Shares (NYSEMKT: GLD  ) is now 12% lower from where it started April, while the iShares Silver Trust (NYSEMKT: SLV  ) is down 18%. 

For the tinfoil hat brigade, the collapse, coming as it did just days after President Obama met with the heads of Goldman Sachs, JPMorgan Chase, and Bank of America, was enough of a nexus to indicate that this was a response to the threats posed by gold (and even Bitcoin) to the Federal Reserve system.

Gold Price in US Dollars Chart

Gold Price in US Dollars data by YCharts, Shaded area represents U.S. recession.

While I'm not sure I buy into conspiracy theories like that, I do know that if it's true, then the Law of Unintended Consequences must surely be at play. There's anecdotal evidence everywhere that despite the dumping of tons of paper gold assets on the market, demand for physical gold and silver has never been greater.

The new gold rush
Bullion dealers are reporting they're seeing individual purchases every bit as strong as occurred back in 2008. My bullion and coin dealer, JM Bullion, has upwards of a three-week delay in shipping American Silver Eagles, yet dealers everywhere are finding it increasingly difficult to get supply. Buyers from India to China are also racing to scoop up gold, with the China Gold Association reporting retail sales tripling in the country between April 15 and April 16, while Hong Kong and Macau have reported volume surges of as much as 150%.

The continued weakness in pricing is unique because it also comes at a time when supplies are being interrupted. Rio Tinto (NYSE: RIO  ) suffered a massive collapse in a wall at its Bingham Canyon copper mine in Utah, which accounts for 5% of total U.S. gold production and 16% of silver. Bingham Canyon is also the world's biggest copper mine, supplying about 1% of global copper, and is part of the reason I see a coming boom in the red metal.

At the same time, Barrick Gold (NYSE: ABX  ) is facing severe delays in the development of its huge Pascua Lama gold project in Chile, as an appeals court ordered the miner to halt work. Newmont Mining (NYSE: NEM  ) had its Peruvian Conga project placed on the "back burner" by officials after it clashed with locals.

Physical versus paper
Perhaps the global banksters are coordinating an attack on precious metals to protect their position, as the conspiracy theorists suggest, but if so, it seems their plan is backfiring, as they've instead created a tsunami of demand for physical gold and silver. Maybe governments are trying to sever the relationship precious metals have as safe-haven assets, but individuals still realize gold and silver has a store of value that can't be broken. So rather than placing a call to your stock broker to purchase certificates in exchange-traded funds, you just might want to visit your local precious-metals dealer and buy bullion instead.

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  • Report this Comment On April 21, 2013, at 11:11 AM, SanPasqual wrote:

    I can't help but notice that when net deficit growth drops relative to the GDP, the gold price drops. Four years since the Bush Administration retired, deficit growth has been cut in half relative to the GDP.

    Interest rates appear poised to return to a net positive level in dollar terms relative to other asset values.

    India has curbed gold purchases. China's economy is slowing. And there is real risk that European governments will be forced to liquidate some of their gold reserves.

    Retail investors have a poor historical track record when buying assets, so the storyline is hard to reconcile as a buy signal. My sense is that gold will be a good thing to buy, but that it would make better sense to wait for the Labour Day Sale.

  • Report this Comment On April 21, 2013, at 11:28 AM, duuude1 wrote:

    Since we're only a few years out from the idiocy of the housing bubble and the subsequent tragedy of the housing collapse, perhaps we can use it as a means of educating ourselves about the current situation in gold.

    Take a moment to overlay the graphs for housing prices from 1997 to 2007 and gold prices from 2001 to 2011. As long as you are looking at gold prices over time, why don't you scroll back some, and go back several decades, go back 100, 200 years. What do you see? A pretty flat line, especially considering inflation, huh? Except for a couple bubbles, gold doesn't do much for you does it? Not like stocks over the long term. Same with housing. A pretty flat line except for that one last bubble we lived through.

    Now. Imagine for just a moment a median home in a decent median neighborhood, in 2006 selling for say $190,000. It then collapses about 10% to $170,000 by 2007 - time to buy right? The NAR says it is a great time to buy. It then falls a further 10% to $150,000 by 2008 - time to buy right? The NAR says it is a great time to buy. It then falls another 10% to $130,000 by 2009 - time to buy right? The NAR says it is a great time to buy. NAR says inventories are constrained, so buy now!! But guess what? If buyers are not convinced that the asset it worth the price, the supply constraint will NOT drive prices up.

    "Bullion dealers are reporting they're seeing individual purchases every bit as strong as occurred back in 2008." "China Gold Association reporting retail sales tripling"

    Of course bullion dealers and the China Gold Association will report anything that will help spur the "tinfoil hat brigade" to buy more gold. The bullion dealers and Gold Association are like the real estate agents and the NAR for housing. How much do you trust the dealer of the asset? Pretty foolish.

    "The continued weakness in pricing is unique because it also comes at a time when supplies are being interrupted."

    Is the pricing situation unique, or is there a weakness in the story of demand, or the story of supply? Perhaps either the supply is not as constrained as the miners would have you believe, or the demand is not as high as the Gold Association would have you believe.

    Perhaps the price situation simply reflects the knowledge of most people (the "tinfoil hat brigade" exempted) that gold is in a massive bubble, and want nothing to do with it. Therefore the demand for gold at these prices is very low.

    Gold is in a multi-generational bubble (the last one was in the 1970s leading to the collapse in 1980). People must avoid gold to avoid another slaughter as we saw in housing.

    Go back and take a look at the collapse in gold prices in 1980, and what it did for many decades afterwards - it drifted down despite continued inflation.

    Don't repeat those mistakes.

  • Report this Comment On April 21, 2013, at 11:54 AM, techy46 wrote:

    Buy low, sell high and watch out for all bubbles.

  • Report this Comment On April 21, 2013, at 12:10 PM, ETFsRule wrote:

    lol, another foil hat wearer to replace Chris Barker at TMF.

    http : //imageshack.us/a/img6/2641/foilhat . jpg

  • Report this Comment On April 21, 2013, at 1:28 PM, urkgurgle wrote:

    you say "tin foil hat wearer", i hear "Baaaaaaaaa"

  • Report this Comment On April 21, 2013, at 1:58 PM, smfree31313 wrote:

    You guys can all remind us of recent history and bubbles, yet you can't seem to remember that every time gold dips, there are all these stories about how the boom is over and all the conspiracy whackos are wrong.

    Then it goes up to new highs.

    And each time you all join in and are in total agreement that this time everyone is right.

    Rather than admit the 'tin foil hat' people were right, you find the need to totally discredit them. Why is that I wonder?

    And as the DOW soars, not 1 article about the inevitable correction there. Only stories about those same whackos who say it's due to the Fed manipulating the market by pumping in $85 billion a month.

    Never mind that it's a fact.

    Again, I wonder why that is???

  • Report this Comment On April 21, 2013, at 3:09 PM, Babcock1 wrote:

    Whether the analysis turns out to be correct or not, one conclusion of the author needs addressing:

    "So rather than placing a call to your stock broker to purchase certificates in exchange-traded funds, you just might want to visit your local precious-metals dealer and buy bullion instead."

    The price of the ETF moves with the commodity (minus a very small cost). Buying either should result in virtually the same gain or loss. There are arguments for holding the physical commodity rather than the ETF (e.g. the ETF may not actually hold the commodity and that could cause problems in future), but these issues were not raised or discussed by the author.

    BASED ON THE POINTS MADE IN THE ARTICLE, I do not see how the author came to the conclusion that someone might be better off with bullion than with the ETF.

  • Report this Comment On April 21, 2013, at 3:19 PM, privacy1 wrote:

    Where's that cheesy English lady selling the virtues of gold now?

  • Report this Comment On April 21, 2013, at 7:48 PM, mitstrebor wrote:

    I hope it falls to $5 an ounce, Just to see how many rich F&C$s We have when it over!

  • Report this Comment On April 22, 2013, at 1:09 AM, megalo99 wrote:

    My hat is made of gold, thank you. It works better than tin at blocking the mind control rays anyway!

    While I don't think that meeting had anything to do with it, I do think The Fed manipulates as much of the markets as they can - any self-respecting, money grubbing banker would if they could!

    So the market is at an all-time phony high, being propped up by the banksters, and now gold drops? whodathunkit! (duh?)

  • Report this Comment On April 22, 2013, at 10:04 AM, smfree31313 wrote:

    Up $30 already today, I think I'll buy a new tin-foil hat.

    For those who still say this is not political or manipulated, please ask yourself this...

    Bubbles come and go, but I never saw such anger towards people who bought real estate, or read articles calling home flippers the "tin foil hat" crowd.

    Face it, Gelnn Beck said to buy it, and rising prices is a lack of confidence in The Chosen One.

    It's just that simple.

    And the more money I put in my pocket, the more crazy I read I am.

    Keep the articles coming! Please!

  • Report this Comment On April 22, 2013, at 1:06 PM, ETFsRule wrote:

    "Bubbles come and go, but I never saw such anger towards people who bought real estate, or read articles calling home flippers the "tin foil hat" crowd."

    The difference is that home flippers never claimed that there was a conspiracy to suppress home prices. But many gold investors have made the unsupported claim that there is a conspiracy to suppress the price of gold.

    The "tin foil hat" characterization refers to people who believe in conspiracy theories.

    Do you understand the difference now?

  • Report this Comment On April 22, 2013, at 1:34 PM, duuude1 wrote:

    Hey smfree,

    Duuude, your tin hat's on crooked - let me straighten it out for ya. There... looks much better. :)

    Look, a $30 pop up doesn't mean much compared to the $300 that gold is DOWN in the last few months, or compared to the $500 loss since the peak a year ago.

    And even the $500 drop is nothing compared to what you are arguing is the "true value" - am I right? That's why you nare buying - right?

    And on the flip side of the argument, I am saying to you that the $500 loss since the 2011 peak is a small downpayment for the BIG LOSS you are facing going forward.

    I understand this argument well, since I have been buying AAPL in the face of tremendous pessimism by the market. I am buying AAPL with the same fervor that you are buying gold. So I understand you well.

    Where I do NOT understand you is that I NEVER buy an asset based on political arguments, and I never blame ANYONE because my purchase goes sour. If I make a bad investment, it is entirely my fault.

    I take FULL responsibility for the bad performance of my investments. I don't blame the CEO, the board of directors, the Fed, the Motley Fool, my neighbors, poor people, the Chinese....

    You believe in personal responsibility - don't you? Well? Then take responsibility for the losses in what you choose of your own free will to invest in.

    Best of luck,

    Duuude1

  • Report this Comment On April 22, 2013, at 4:55 PM, RedScourge wrote:

    My advice to you all is to buy discount gold stocks rather than gold itself, because at the moment the Dow to Gold ratio is still relatively low, indicating that stocks are underpriced and gold is overpriced. When the Dow to Gold ratio goes higher, then consider buying gold then, as it infers that another stock crash might come at that point, and often gold goes up in stock crashes.

    Since gold will likely go up in the mid to long term anyway due to coming inflation which has already been guaranteed due to the massive amount of M2 an excess reserves growth on the books at the Fed, buying gold stocks now, after they've just been hammered, specifically in companies which are a good deal, is probably the best way to go. I saw an article a few days ago which shows you how to evaluate whether a gold stock is a good price or not, the calculation involves adding the market cap divided by their ounces in the ground and the cost per ounce to dig it up. You'd want to pick gold stocks where this figure is as low as possible. Here is the link to the article I saw on this: http://seekingalpha.com/article/787361-most-gold-for-the-buc...

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