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In virtually every financial market across the globe, investors are
asking,
“What happened?”
Investor Meltdown
In what seemed
like just moments, the
global markets began to tumble and gain momentum, falling between 5% and 20% so far, and the falls keep coming. No fundamentals have changed, no breaking news shocked the market, but suddenly we are back to 2008, when highly leveraged investors with as little as 10% paid on their positions were wiped out and forced to sell to stop more losses. As
computer-imposed, protective stop-loss instructions were triggered, falls accelerated, wiping out investors left, right, and
center.
The Technical picture
then took on a life of its own, with
support level and resistance
points gaining total credibility.
The damage changed the attitudes of developed world investors cutting down the involvement in
highly risky positions,
all but eliminating the fly-by-the-seat-of-his-pants investors. An investment
‘soberness’ kicked
in. During the years since 2008, financial markets have taken a different view of risk and such over-leveraged positions have been curtailed.
Futures and options markets have raised margins quicker and more decisively than before, limiting such catastrophic losses to a large extent. That does not mean it won’t
happen; it will, but to a much lesser extent.
Investor Recovery
In 2008 it took nearly 18 months for precious metal prices to rise to new highs. Equity markets recovered but have simply regained former levels at best.
With far greater
restraint in the markets now, investor recovery will be faster and more
conservative, guarding against
holding risky positions for too
long. Speculators and Traders will
be far faster in closing and opening positions, moving with the market more rather than fighting to make it move. This does not eliminate volatility but it does speed it up and shorten market reactions. In fact, expect greater volatility!
So we ask
how long will it take for investors to recover from their losses and re-enter the markets again. That’s impossible
to say. In the case of the precious
metal markets, the
question should be,
‘how long will it take for the markets to realize the dangers facing the
global economy will make the wealth-preserving
nature of gold and silver visible to the bulk of global investors.”
The answer to that
question has changed somewhat
since 2008.
·
Since then the emergence
of the Chinese and other precious metals investor has jumped significantly as the growth of their middle classes has climbed
exponentially. These
people are savers of up to 40% of their income and of the total income invest around 7% into gold or silver. This fundamental demand facet is new since 2008.
·
In the developed world, the concept of
silver and gold as counters
against both inflation
and deflation have become
more accepted.
·
Non-leveraged investors
make up the vast bulk of global investors and recognize the signals given by the markets we now see
around us. After their strategy meetings, such risks are factored in and portfolio adjustments
made. In the current
investment climate, such adjustments are quicker to realize the benefits of precious metals and a larger proportion
of the portfolios assigned to precious
metals. Heavy falls then give their
dealers ideal entry points.
·
Once the traders and speculators have enjoyed the froth in the markets, they will back off in the face of real demand.
This will allow the prices to ‘floor’.
Combine all these factors
and you can see that compared
to 2008 the time for investment recovery
in gold first, then silver,
will be a far shorter process than it was in
2008.
Gold Bought in Deflation, by Central
Banks
What is more
apparent since 2008 is that precious metals are a haven in deflationary days. Gold is both an asset
and cash, around the entire
globe. In this global environment
with worldwide, web-like, banking systems, gold is the one
international item that is
an asset to all, free from
governments. Gold has moved
back to the center of the world’s monetary system where banks who are finding it difficult
to raise loans at reasonable prices, are using gold as collateral to facilitate. Gold is now a viable, monetary asset and no longer a barbarous relic. The demand from emerging
nation’s central banks
in the last two years has
confirmed that. Their buying on the dips, when there
are fair quantities to be bought, testify
to that. This sort of buying
is price insensitive, persistent, and likely
to be very much alive with a gold price in these regions.
Growing Preponderance
of New Asian, Long-Term Buyers & Their Style
& Will the Recovery Happen
Now and at What Prices?
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