Gold Price Drops Below $1,500 and €1,150

Latest updates:

Today’s drop in the gold price was very aggressive. The low of the day, so far at least, was set at $1,496 after which the price has bounced back to $1,509. No matter how you look at it, the gold price drop was exceptionally sharp. The same goes for silver. To put this decline into perspective, we pulled together all price declines of more than 3.5% over the past 12 years. As appears from the following table, only 25 times did the gold price drop more than three and a half percent on a daily basis. (courtesy: World Gold Council).

Update (23h GMT / 18h EST): Meantime the trading session has closed and the gold price declined 5.5%.  The following table shows how the gold price has dropped sharper on only three days in the past 12 years: on May 19th 2006 (6.0%), October 13th 2008 (7.6%) and August 24th 2011 (5.65%).


What should we make out of this? A couple of first thoughts:

  • First, as counterintuitive as it looks (given the continuing monetary expansion and low real rates), “it is what is”. This is a significant drop breaking a major support level. Lower prices should be expected. However, it is impossible to say how low they can go.
  • Second, in circumstances like these, the market needs to adjust itself. It is difficult to get your eyes off the charts, but the market needs time to reach a state of equilibrium.
  • Third, as suggested today by people like John Hathaway and Andrew Maguire (who are following the precious metals markets for decades) that a point of capitulation COULD be near. It means that we could be near a point of  a total wash out, which is the condition for a new leg higher.
  • Fourth, even if a new leg higher will not follow soon, the bulls should ALWAYS be prepared to see lower prices, no matter for how long prices decline.

At the end of the day, physical gold and silver holders have chosen to protect their assets from fraudulent monetary practices by governments … or from outright confiscation like we witnessed in Cyprus. That fundamental case did not change today, did it?

Moreover, the physical market remains very attractive, and investment demand is high. Especially in silver, as we have written recently in The Great Disconnect Between Paper & Physical Silver.

Jim Rickards was one of the first to react today with this twitter message:


We are looking forward to review the weekly Commitment of Traders Reports. We will report on it in the coming hours. Stay tuned, and relax if you are a physical gold or silver holder who has chosen for the monetary protection.

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