Was That a POP I just Heard? - 4/15/13

Special edition:  Was that a "pop!" I just heard? Is this email not displaying correctly? View it in your browser.

SPECIAL EDITION:  The Gold Flush First: Our thoughts and prayers go out to everyone affected by the explosions in Boston this afternoon. If you read my posts you've seen my concern for gold investors over the last year.  Gold topped out at about $1900 an ounce in the summer of 2011 when stocks plummeted on fears Greece would collapse the Euro Zone. Since then gold has acted as a tire with a nail in it.  Last year gold struggled to hold $1800/oz.  That's when I started making comments such as, "everything that has quintupled in price over a short period has always been a bubble."   Gold has continued to slowly deflate, but plummeted below $1400/oz. today.  It is down over $140 (9.5%) and continues to decline after market.  Media pontificators point to the possibility Cypress may have to sell $522 million in "excess reserves" of the precious metal to help finance its bailout.  While it sucks to be Cypress, that is a pittance relative to the entire gold market. So how can this precipitate such a devastating effect on the overall price of gold? Welcome to the wild world of speculation, the birthplace of every bubble.  Anyone conscious at some point in the last 5 years has heard things like: "gold is the safe play for your money," "it never goes down in value," and "is a must to own when the economy collapses." Individual investors, pensions plans, endowments, and governments large and small have been stockpiling gold and gold producing company stocks (which are also suffering dramatically) over the last 5 years.   Most gold owners have underwater positions at $1500/oz.  And now that one governmentmay be selling, worries abound others will follow suit. Keep in mind this hasn't actually happened, it's speculation.  But in the commodities world, speculation is the only thing driving prices.  Unfortunately the prices drive business. For example: as gold prices increased, gold producing companies ramped up to meet the demand.  So much so that the cost to produce an ounce of gold has risen from about $500 in 2009 to approximately $1,200 today. The additional cost has been incurred for exploration, facilities, equipment, etc.; all things that can't be undone.  At $1,400/oz. the margin is slim.  I doubt I need talk about what happens if the price continues to drop.  While there is no guarantee it will, here are a few current observations by gold investing experts:  Dennis Gartman, founder of "The Gartman Letter" told CNBC this morning, "There are a lot of people throwing up their hands, throwing positions overboard. Panic is everywhere. I've never seen anything like this. I mean it. Here we are under [$1,400] and who would have thought it? Not I." J.P. Morgan Natural Resources fund manager James Sutton agreed.  He stated, "the fund is taking precautions, trimming its gold holdings to lows not seen since the financial crisis. Many gold businesses could fold." "As you get closer to the production cost for gold people get nervous," said Jonathan Barratt, founder of Barratt's Bulletin. "Oh my, I think I just heard something pop," said…....me. In the world of institutional investors it is times like these when the game goes like this: first one out loses the least.  That is to say, it is better to pull your head out and clean up after the swirly than to get flushed altogether.  If you own gold for investment purposes, you may wish to keep that in mind. I welcome your questions and comments. Warmly, Marc Becker, AIF For more insight on this topic: http://www.cnbc.com/id/100641133 http://www.cnbc.com/id/100640665 http://goldnews.bullionvault.com/gold-mining-062820123 To read past articles and view past videos, visit: www.marcbecker.tv