The Bursting Gold & Silver Bubble… Both Became The Devil’s Metal (GLD, GDX, GDXJ, SLV, TIF)

On the way up, you heard many $2,000 gold targets.  On the way down, the dooms-day crowd not only gets bold but they come out of the woodwork.  Monday marked another day of margin calls and on funds liquidating.  A low of about $1,535 on Comex gold was the lows seen in more than two-months, in part aided and abetted by more margin requirement news.  Amazingly, the dollar strength is a part of it as well and lower industrial demand for gold and silver being likely.

Spot gold was down almost $60 around $1,600 on last look.  The investing community is still using the highly liquid SPDR Gold Shares (NYSE: GLD) as the benchmark for tracking gold and it is down 1.9% at $156.75 on more than 37 million shares with more than 30 minutes until the NYSE closing bell.

What will seem counter-intuitive is that the liquid ETF of Market Vectors Gold Miners ETF (NYSE: GDX) is up on the day.  The solid and established gold mining stocks are somewhat following stocks rather than following the price of gold as that ETF is up just over 1% at $57.00.  The speculative players are following the move of the metal: Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) is down 2.2% at $29.05 on more than 6 million shares.

This morning came word that the esteemed market pundit Marc Faber could see gold going back down to $1,100.00.  Regardless of who said what, you might as well expect to hear nothing but “I Told Ya’ So” calls from those saying gold was a bubble.  The price did reach silly levels, but we felt that way after about $1,600 and $1,700 on the way up.  Gold started getting so high that we even started worrying about covering it due to the high possibility of losses for readers chasing metals regardless of what was written.  It was like chasing internet stocks in January of 2000.  Regardless, Zacks issued a piece just on Friday showing the best rated precious metals mutual funds to invest in for uncertain times.

When is a bubble a confirmed bubble?  When investors lose money far faster during a price drop than they could have ever made on the way up.  Also when they can’t make up money averaging in.  It was just at the start of September that gold hit $1,900 and it hardly took three weeks to bust $1,600…

If you think this drop has been severe in gold, look at silver:  NY Silver was above $40 per ounce just last week.  We broke $30 today, even if silver is back at $30.08 today.  iShares Silver Trust (NYSE: SLV) is down 1.5% at $29.52 late in the day and was as high as $39.64 just as recently as September 21.  They call it The Devil’s Metal for a reason. 

Gold is down more than 16% from the highs in early September, but silver has lost close to 25% of its value just last week.  Honestly, both feel like the Devil’s metals now.

Here is something else that may seem counterintuitive… Tiffany & Co. (NYSE: TIF) is down 1.3% at $69.62.  Doesn’t lower gold and silver mean higher realized margins?  Apparently not.  Tiffany certainly owns gold and silver at far lower prices, but this move may have really softened the luxury jeweler’s pricing power.

Forget about us for a second.  Tell us what you think… $40+ silver to $30 silver and $1900+ gold to $1600 gold…  Share  your opinion in our confidential poll that will require a whole 20 seconds of your time:

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JON C. OGG