In the last three days, gold souks in the Kingdom have come alive with buyers flocking to cash in on the sharp drop in gold prices.
Most of the shop owners in the gold souk in Kandra said that their businesses have increased 50 percent in the last three days, whereas those in Balad said sales of 22-carat had gone up by more than 75 per cent and were expected to rise further.
Ismail, a salesman at Malabar Gold in Balad reported record rush since the drop in gold prices.
Arshia Nuzhat Baig, an Indian housewife in Jeddah, said it was “good news.”
Tanuja Anand, a Riyadh-based homemaker, said she was overjoyed and had immediately bought gold ornaments.
Syed Ghaziuddin Ali, a long-time resident of Jeddah, said it came as a “pleasant surprise.” He has invested in gold biscuits.
On the weekend, scores of families were seen shopping for gold in Riyadh and Dammam also, according to trade sources.
Prices of gold have stabilized at SR 173 per gram for 24 carat. This is up SR 2 per gram compared to what it was two days ago. The price of 22 carat gold is now SR 159 per gram — up SR 1 per gram as against two days ago.
Although there is a fall in gold prices, gold ornament shops are charging customers extra money for design and ornamentation.
Indian expatriates are top buyers of gold jewelry in the Kingdom. Many of them prefer to purchase 22-carat ornaments, which are available in few shops in major cities that are usually crowded.
Gold shops are struggling to cope with the rush. Salesmen are finding it difficult to maintain inventory of stock after closing shops. Some close earlier than the regular time in order to take inventory.
The big shorts in the precious metals markets have acted as the governor, preventing the true expression of the paper currency value of real money for decades.
It seems to be no coincidence that their market dominance was enabled in large part by the luxury of interested parties enjoying cheap access to the world’s main reserve currency.
An Overview of the Recent Timeline
It seems relevant to review some of the recent historical events and circumstances that have brought the currency market to its present tenuous state.
The first factor to consider is the credit bust. For too many years, going back to the 1990’s, the Fed’s and other major central banks’ policies have incentivized leveraged speculation. This has fostered a massive inflation in the global pool of speculative finance that createda situation where too much market-based liquidity or “money” has been chasing too few risk assets.
The second factor is the massive rise in monetary stimulus programs. One result of these huge quantitative easing and bailout packages is that unprecedented monetary creation is largely bypassing real economies on its way to creating bubbles in global securities markets.
The third factor is the realty of unbalanced government budgets. The recent U.S. government budget released showed an increase in spending, as the much-publicized debt ceiling limit is repeatedly increased and adherence to it postponed. Nevertheless, that ceiling was an important — albeit probably symbolic — gesture that telegraphed to the rest of the world there would be some limits to the huge debt already accumulated by the United States.
Finally, the recent banking crisis in Cyprus has provided the world with a template for the first direct bail-in, where bank investors and depositors help pay for its failure to operate in a commercially viable manner.
Global Monetary Expansion Continues
Japan recently announced further radical stimulus measures to help stimulate its flagging economy. This increasing trend toward boosting the Japanese money supply has resulted in a sharply weaker Yen, which has declined from a historic high of 75.55 Yen to the Dollar seen in October 2011 to a recent high of 99.94 touched on April 11th of this year.
Another remarkable event has been the parabolic rise in Bitcoin observed over the last few years, only to see the electronic currency crash hard in extremely volatile recent trading. The crash came in the wake of some recent Denial of Service attacks on Bitcoin’s primary dealing website Mt. Gox that handles roughly 80 percent of its market.
The prices of gold and silver have also been hit hard enough to break a key 38.2 percent Fibonacci retracement level that in turn provoked further technical selling. The sharp sell-off in the precious metals has conveniently allowed J.P. Morgan Chase to exit some of its concentrated short positions.
The Money Supply and Money Creation
Basically, the world's stock of fiat money is not contracting —quite the opposite, in fact. Japan has just launched its ‘stimulus on steroids plan’, which will see the developed world's most indebted economy create a proposed $1.4 trillion in Yen in a bid to break its economy free from depression and the questionable risk of deflation.
Nor is money creation in the West likely to subside, although earlier this month, the FOMCdid hintthat it might reduce its asset purchases later this year and that the committee was divided on the risks of continued super easy monetary policy.
Furthermore, current Bank of Canada governor Mark Carney's departure to head the Bank of England is expected to result ina trend toward more activist monetary policy in the UK too.
Triple Forex - Money Cracking Up as a Reflection of Confidence.
On the world’s forex market, recent weakness in the commodity currencies like the Australian, Canadian and New Zealand Dollars has been noted in the wake of the remarkable sell-off in the precious metals seen over the past week.
These currency moves tend to highlightrecent U.S. Dollar strength, more so than being a reflection of the recent commodity downdraft.Nevertheless, recent events may actually represent the last gasp of King Dollar, as inflationary U.S. monetary and budgetary policies continue to chip away at the value foundation of the world’s primary reserve currency.
Precious metals now appear to have found good support, with retail physical sales reportedly booming at the lower prices, despite heavy downward pressure exerted on the paper futures markets.
The use of barter also seems to be increasing in popularity as a method of value exchange, as people turn away from fiat currencies in droves. In addition, the recent rout in Bitcoinprices, has drawn considerable media attention to the use of that electronic currency as an alternative medium of exchange to fiat currency.
Falling Prices May Accelerate Monetary Expansion
Falling commodity prices are simply another indication of failed policy that could well set the stage for a further acceleration in monetary expansion.
Speculative excess today encompasses all markets, with big money piled up on both the long and short sides of the financial markets.
Ultimately, it is the large shorts whoseem to trigger the sell-offs in the commodities like silver and gold, probably so that they can cover their positions profitably.
For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit http://www.silver-coin-investor.com
What Do You Think?Any thoughts about this? Share it!
What if Silver and Gold Investors are Wrong?
The recent declines in the gold and silver markets have prompted some soul searching among even the more dedicated precious metals investors.
A rational investment approach would involve considering the likelihood of various scenarios that could hurt precious metal prices even further.
Unfavorable PM Possibilities
Steadfast precious metals holders might be wrong about the long term bullish prospects for SILVER and GOLD if just a handful of the following statements were true:
- Real, sustainable growth can come from expanding debt in just the right amount,in combination with just the right amount of currency devaluation.
- It is proven once and for all that currency devaluation, printing paper currency andincreasing electronic amounts of a currency will not create inflation.
- Peace will come in the currency war and the revaluation process will begin.
- Budget deficits suddenly come under control as austerity is welcomed by the masses, while politicians are elected for telling the painful truth about the short term.
- The big banks will forego profits, turn their backs on shareholders, break up voluntarily into smaller entities, and encourage the re-imposition of the Glass-Steagall Act.
- Banking CEOs and billionaires — including Warren Buffett – suddenly decide to donate their net worth, assets, and foundation money toward paying off the national debt, thereby inspiring troves of others willing to do the same.
- The markets will finally embrace the precious metals as commodities and trade them as such, removing uncertainty and the pesky investment demand character.
- The legal system, led by a fed-up judiciary branch, suddenly begins prosecuting corporations that are deemed too big to fail, and in the process, takes control of systematically breaking up the big investment banks and re-invoking Glass-Steagall.
- The equivalent of the Mother Lode is discovered, and suddenly the greatest mining project the world has ever seen begins in earnest, with sudden flows of investment capital entering like a tsunami.
- A mad rash of selling of all the jewelry, antiques and silverware ever manufactured suddenly occurs during a time where inflation adjusted prices in every currency are far below historic levels.
- Graphene— the world’s best candidate for replacing silver in numerous industrial applications — suddenly experiences a big ramp up in production, and the companies producing it decide to become nonprofits, while coming up with an easy way to "coin it" so that Graphene could also be used as an inflation hedge against the trillions of fiat currency units created to fund the necessary capital for scaling up production.
- GATA's evidence and Ted butler's research were just made up for profit ventures after all.
- All the naked short futures contract holders are actually safely hedged against customer business and non-manipulative market participants.
- A brilliant mathematician figures out a new formula for managing risk and accounting for counterparty ownership in the derivatives market.
- A new product is developed, proven and packaged as a mind control serum that effectively manages human behavior and emotion.
A Rational Approach to Precious Metal Ownership
Any rational person should question whether long term silver investors are 100% wrong, especially in light of the recent notable decline in the price of silver.
Nevertheless, if they ultimately conclude that silver investors are probably not wrong, then prudence would dictatethat at least some allocation of their investment portfolio to properly held precious metals would be appropriate. Presently, such metals holdings account for less than one percent of all global pensions.
This seems far too modest a portfolio allocation, especially since properly held bullion and shares in precious metal miners would likely act as the most efficient store of purchasing power over the course of any paper currency devaluation and conversion.
Of course, the ‘Get ‘em while they’re cold!’silver-related investment vehicles — like futures, ETFs, unallocated bullion holdings and other fractionally reserved claims on physical silver reserves easily replaced with cash – would probably not participate.
What Do You Think...?