There is little debate as to the primary cause of the recent price drop in gold and silver. One clear explanation says it all – it is due to margin call liquidation by people holding long future contracts on precious metals.
What Happened?
Those who have been holding future gold and silver contracts were forced to either deposit $20,000 to $25,000 per contract held, or be sold out by their brokers. This demand for large amounts of money resulted in people panicking and trading off what they owned via NYMEX/COMEX.
This sporadic trading activity has also caused the prices to come down on copper, platinum, palladium and oil. Coincidence? Maybe.
Is It Real Or Rigged?
Given the extraordinary trading activity and aftereffects, there are some who speculate market rigging is at play here. Macro analysts John Mauldin said in a recent newsletter:
“Five hundred tons of paper gold contracts were sold dumped into the market on Friday. That is a lot of gold. In short, some people sold gold like they had a gun to their heads, in such a quantity and with such ferocity that the likelihood of their being a for-profit seller is right up there with my chances of winning this week’s Masters”
The gold market is one of the most opaque and complex markets in existence. Could there be more at play here than we realize?