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Gold's movements in the Fall of 2008

CaptHenwayCaptHenway Posts: 32,128 ✭✭✭✭✭
in Precious Metals
Serious question:

In the Fall of 2008, as the banking industry teetered on the brink of collapse, gold went down. Why?

Were the institutions dumping gold to shore up their cash reserves? As I remember the times, retail demand for gold was strong, but the spot price was weak. Can anybody enlighten me as to what happened, and why?

Thanks. No political commentary, please

TD
Numismatist. 50 year member ANA. Winner of four ANA Heath Literary Awards; three Wayte and Olga Raymond Literary Awards; Numismatist of the Year Award 2009, and Lifetime Achievement Award 2020. Winner numerous NLG Literary Awards.

Comments

  • coinnut86coinnut86 Posts: 1,592 ✭✭✭
    At the time, I read a few articles saying people started a selling frenzy to have cash to pay off debts.... I don't recall the sources but they were credible.
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  • coinnut86coinnut86 Posts: 1,592 ✭✭✭
    I had 50k in gold futures that tanked right then... I was pissed... Top in the class until then image
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  • HalfStrikeHalfStrike Posts: 2,202 ✭✭✭
    I'm actually surprised it held up as well as it did, everything was being liquidated with margin calls.
  • KameoKameo Posts: 207
    I remember hearing/reading funds that held gold were selling it off in very large quantities. Thus, causing the price to fall.
  • ttownttown Posts: 4,472 ✭✭✭
    The paper maket and hedge funds caused it. They think PM's are now just like stock and they can issue more paper than physical PM's. We didn't have the problem in the last bull run and wallsteet have devised a plan to keep this under control. It's worked well until it doesn't. Really even when paper PM's were down the spread was high, it's a matter of time until the paper/ physical decouples and the game will be over.
  • secondrepublicsecondrepublic Posts: 2,619 ✭✭✭
    It's an interesting question because in theory, that should have been gold's shining moment.

    I think it has to do with the massive deleveraging that happened in the fall of 2008.... everything seemed to be being liquidated all at once, and there was an overriding need and desire for cash. People and institutions which owned gold didn't only own gold. Many of them, particularly the institutional investors, had most of their exposure in other assets that were tanking (stocks, etc.). In many cases they couldn't get out of those positions even if they wanted to (remember all the hedge funds that froze redemptions to their investors?). So -- long story short -- they began dumping their other liquid assets, such as gold. That put a massive dent in gold's price.
    "Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
  • JustacommemanJustacommeman Posts: 22,847 ✭✭✭✭✭
    The carry trade unwound sending foreign currencies to plummet against the dollar and yen. High yielding high flyers got knocked down hard ( -30%) and sent gold down with it. All risk trades took a haircut. Gold positions got liquidated along with everything else. Tom I agree it did seem counter intuitive. MJ
    Walker Proof Digital Album
    Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
  • ttownttown Posts: 4,472 ✭✭✭
    They weren't getting rid of physical just paper. Case in point no one had any for sale at paper prices for physical at the mid $8 level for silver you were paying at least $4 over spot and had to wait in most cases even if they were selling. Remember the threads anything that was paper was being sold etf's, comex, mining stocks etc. When prices returned to fair value the spead decresed.

    Will it repeat? I'm not sure but I think it will as we go in and out of these swings. T bills and Cash seem to have been in vogue with everyone wanting safety. This time around T bills and fiat are worrying people as being safe so it could go the other direction this time. I was in short term treasury's last time but really the way they're printing money I hate to get stuck in any bonds as I feel inflation is coming and you could be selling at a huge discount the next time around.
  • jmski52jmski52 Posts: 22,829 ✭✭✭✭✭
    I had just bought a green monster box, and an expensive 1 ozer Plat. This, in turn caused the precious metals market to tank.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • CaptHenwayCaptHenway Posts: 32,128 ✭✭✭✭✭
    Thank you all for your insights.
    I am writing an article for COINage and was trying to reference that period, and in my memory it did not make sense.
    Obviously my memory was correct!
    TD
    Numismatist. 50 year member ANA. Winner of four ANA Heath Literary Awards; three Wayte and Olga Raymond Literary Awards; Numismatist of the Year Award 2009, and Lifetime Achievement Award 2020. Winner numerous NLG Literary Awards.
  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    No doubt a ton of paper gold was sold off in 2008 during major down moves from July-September and then in October-November. But I have to question how much physical gold really changed hands. If you go by the ETF GLD inventory it actually increased its overall holdings by quite a bit from the peak in March 2008 to the pog bottom in November 2008. Counterintuitive?

    During the first major down draft in 2008 the GLD holdings fell half the percentage that the price of gold did. A fairly substantial dip. But that's about the last major dip that GLD inventory has seen. And note that the July massacre was well timed with a large increase in gold derivatives and gold shorts. Silver derivatives were doubled from $90 to $190 BILL in preparation for the kickdown. Even during the final washout in the late fall GLD inventory only dropped a measly 3% while gold was getting slaughtered 22%. Yes, the institutions were selling anything paper related to gold that would get them quick money. The gold mining stocks took a huge bath and dropped much further than about any other sector. Overall most miners fell about 75%. Most gold funds fell a similar amount.

    I read an article last week that has the London gold market trades more than the world's total historical supply of gold EACH year (155,000 tons+). Each week they trade more than the world's annual mining supply (2500 tons). The Comex ratios are similarly out of whack. I seriously doubt if any significant quantities of real gold were sold during the 2008 smackdowns. If they were, China and other nations were probably happy to pick up quantities on the side. The gold sell off in 2008 was mainly in paper.

    The BSC failure really didn't hammer gold that hard as it came back strong in a couple of months. But the July smackdown was a far more serious hit. And then with the Lehman failure in September came the final hit to gold. The Comex gold futures dropped over 200,000 contracts (20 MILL oz gold) during this period. That's hundreds of tons of paper gold.

    GLD performance in 2008

    roadrunner
    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • jmski52jmski52 Posts: 22,829 ✭✭✭✭✭
    Wasn't that about the time that the liquidity crunch hit? After Bear Stearns & Lehman but before the TARP bailout? Everything was being sold and gold was no exception.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • renman95renman95 Posts: 7,037 ✭✭✭✭✭


    << <i>Wasn't that about the time that the liquidity crunch hit? After Bear Stearns & Lehman but before the TARP bailout? Everything was being sold and gold was no exception. >>



    Yup, about that time.

    I also remember that gold and platinum were very close and I urged some friends to buy plat....they didn't. I did.

    At least one of my friends did buy lots of junk silver then. He's quite happy. Me too.
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