Wednesday, April 24, 2013

The Great Gold Crash


In the face of the current single day fall in the gold prices I have to ask a question after the sense of all this...
For no apparent reason the gold prices have plunged more than $100 an ounce in a day?!

Actually I compared the basic principles of the financial, derivatives, futures markets and stocks with the rules of casino games. But after the current events and developments in gold prices I am not sure, if there are any "rules".
During my MBA study I have learned a lot about the principle of arbitrage and the dynamic of the market that should guaranty the fair prices on the markets.

So the questions are:
"What is the "real" and "fair" gold price?"
"And why the gold prices crashed now?"


To be honest, we do not know. We cannot say exactly, even in retrospect, what happened, because fundamentally nothing has changed in the gold market. Gold is still one of the scarcest commodities in the world.

The analysts named two reasons for the current crash for gold prices (of course published after the crash!:-):
Firstly, many investors feared that Greece, Spain and Italy could soon be throwing large amounts of their gold reserves to market.
Second, China has reported weaker than expected economic data.

Both reasons do not make any sense for me and I cannot accept these as a trigger for the crash. The "large amounts of their gold reserves" are still too small and wouldn't have any bigger impact on the market.
And the sale of the gold reserves would have catastrophic consequences for the reputation of the countries with investors.

I tend to the steep thesis that some investors would bet on the falling gold price and then denigrated the market successively to even conjure up the fall in prices at which they earned then.

The reason remains unclear, but for me (for us all) doubts quickly rise if under these aspects we should build our pension plans based on this fundaments...:-/