Why Precious Metals Prices Went Down

Sept. 29, 2011 - PRLog -- There are four reasons why precious metals plunged last week: Federal Reserve inaction; mutual fund redemptions; margin calls at hedge funds; and China’s stalling growth.

The Fed did not do what everyone thought it would, which is to say something more than Operation Twist.  It did not announce more currency printing. This was bearish for commodities in general, and especially gold.

Mutual fund cash levels are at or near record lows. They were not prepared for the market selloff, and when the sell orders came in, they unloaded gold and took some profits.

Hedge funds sold gold and silver for the same reasons as mutual funds, but also because they mistimed the play and what Bernanke would do.

China’s growth story is fading because commodities in general have been hit hard, along with currencies of commodity-producing countries, because the global economy is slowing rapidly.

In the wake of increased volatility related to the above, the CME hiked margins on gold (21%) and silver (16%). That likely added to the volatility, but was not a fundamental cause of the plunge in precious metals. What will the Fed do next; problems for Bernanke. “Those with cash should be buying big during this dip.”