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The Golden Beatdown

With gold and silver taking historic plunges in the last week, investors are looking for answers. Why have the precious metals taken such a steep dive in the midst of an environment that seems to be ripe for investment in them (out of control government spending, Euro-zone debt crisis, and a flight from securities)?

One possible answer is that what we’re seeing is just a typical retraction. As this chart shows, the recent decline has only brought gold in line with it’s broader slope of increase.

The sell off could just be the market’s innate way of staving off a bubble. Or, as many have hypothesized, the double-digit plunge in gold prices is a result of profit-taking before the end of the quarter.

However, news from Europe may be signaling a more threatening reason for the sell off. According to SHTFplan.com, European governments are implementing a limit on the access of gold:

Austrian banks have now been ordered to restrict the sale of gold and silver bullion purchases and are limiting personal acquisitions of precious metals to 15,000€ (approximately $20,700 USD) at a time, or 11 ounces of gold at today’s prices.

That alone could cause the price of gold to drop. If you can’t sell your holdings in the future, you might want to take care of that now. Municipalities in the United States are also requiring identification in the transaction of gold, ostensibly to prevent money laundering, but if that was the case, it seems authorities might be barking up the wrong tree.

Another possibility is that the US is selling its gold in order to fuel the economy. Of course this wouldn’t be announced in any formal way because it would surely produce a scare, but it would certainly cause the type of price swings we’ve seen recently and would be a good reason for the governments of the world to start tracking bullion sales.

I have a small position in UGL and AGQ and I plan on doubling-down when prices level off.

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