SGM Metals: 2011 Gold Pullback was Simply Demand for Cash!

Jan. 6, 2012 - PRLog -- marketwatch.com reports: [ Gold futures prices GC2G +0.73% reached a record close near $1,900 an ounce in August and year to date, they’ve gained 13%. Still, many analysts had predicted since the start of 2011 that this would be the year prices for the precious metal reached $2,000.

But with global stock markets selling off throughout much of the year and investors often favoring the U.S. dollar as their safe haven of choice, gold failed to find support as investors sold their gold to generate needed cash. “This year was about liquidation — when portfolios were falling and participants needed capital, they turned to selling off precious metals that came off a solid first half,” said “Precious Metals Investing for Dummies” author Paul Mladjenovic. “In other words, precious metals were over bought in the first 6 months and oversold in the last 6 months.”

“Gold has had to face its own headwinds, not caused by poor fundamentals, but by ‘investor meltdown’ as investors from European banks to cash-strapped individuals have needed to liquidate gold to cover shortfalls in other areas,” said Julian Phillips, an editor at GoldForecaster.com.

Then as the U.S. election debates heat up, he expects gold to move to $2,200-$2,400 by late October. That’s where gold prices will likely peak for 2012, Person said, noting that prices may trade there, but not stay there. ]

If you listen to the Wall Street paid talking heads on the ‘business news’ channels they will tell you the gold bull is dead, but if you talk to a sensible economist they will tell you that investors who insist on putting their financial well being in the hands of banker controlled derivatives got their butts handed to them and simply needed to raise cash and did so by selling gold. Interesting is the fact that this is precisely what gold is for, a wealth preservation tool.

If you consider the idea that traders who realize that higher risk brings about the possibility of higher returns, then it isn’t a longshot to realize that these traders who willfully take on a higher degree of risk in an effort to achieve the higher returns would also need a wealth preservation tool to act as a store of wealth in the event that the trading strategy backfires. This allows the trader to test his strategy and if it is wildly successful he then can liquefy the precious metals holdings and go big in the trade or if it turns south he can cover his losses by converting the gold back into cash. Either way this is exactly what the job description of gold and silver is, a short or long term store of wealth tool that can be as firm of flexible as the holder of the metal wants or needs it to be. Stated differently, it is an instantly liquid insurance policy that sits at idle awaiting any financial disaster that may arise whether the basement floods when the hot water heater bursts or your 401K gets destroyed in the housing crash of 2008, or you find yourself needing a new roof after a tornado wreaks havoc.

Imagine how your checking & savings accounts at the bank are supposed to work, you have the checking account for incoming and outgoing monies and your savings account gets doses of capital as you are able to take a little here and there out of checking in hopes of putting away regular amounts of capital. This is where the bank accounts and your precious metals accounts begin to vary. The main difference is that while you are working your fingers to the bone trying to generate the capital to sustain your lifestyle and putting a little money away for a rainy day, the banks are using your capital to lend to other bank patrons while your life savings are exposed to massive counter party risk as the financial institutions use your assets again on their balance sheets as their assets and leverage it at 40-50/1 to buy derivatives and generate fees. This all goes well until it doesn’t, then you run the risk of the bank becoming illiquid as the borrower who got a car loan begins to default on payments and the derivatives the bank bought become insolvent, now you have a problem that can not arise from having gold & silver as your saving mechanism that can ONLY arise from utilizing what was once considered a safe program of the banking industry. Now consider if rather than leaving your life savings vulnerable to the banks profit demands instead you employed an asset that is known for its wealth preservation characteristics that has absolutely zero counterparty risk and you could convert it back into cash at any point you saw fit in any increment according to your needs.

Now consider that if you had utilized gold and or silver as your savings account after the 2001 dot.com bubble shook the stock market up and destroyed retirements you would have seen a seven fold increase in gold holdings and an almost 10 fold increase in your silver holdings. Consider for a minute if depositors had used their money for their own benefit and didn’t fund the derivatives bubble that has already claimed so many victims in todays current global financial crisis. Imagine how better of a financial position you would be in currently if you had utilized precious metals as opposed to letting your life savings collect a whopping 1.75% in your savings account only to have the interest taxed as income as the government bleeds every dollar out of its citizens it can to fund its parasitic growth. Establish your ‘Weak Economy Insurance Policy’ in gold & silver today before the Federal Reserve announces QE3 and the world panics and dumps dollars for the very asset that can protect them from the dollar losing value, gold & silver. Don’t play chicken with the forces of economics and the human emotions as they will rise up like a tsunami and destroy all that are in its path. Get to high ground on the backs of gold and silver and sleep better as the tidal wave of inflation turn this recession into a hyperinflationary depression that will make the Great Depression look like a walk in the park.

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SGM Metals strives to offer not only wealth preservation precious metals investments to offset weakness in the economy, but to help educate our family of clients to better identify the threats to their financial security.