Just a few short weeks ago, precious metals were the trade of the day as the debt crises in the U.S. and abroad made stocks, bonds and cash less attractive for investors.
But gold, often cited at the ultimate safe haven, has taken a shellacking in recent days, along with silver and copper. After hitting new highs regularly since the beginning of this year, gold has now suffered its worst three-day fall since 1983. In early September, gold touched its all-time high of $1,920, but since then it's down nearly $304 to $1,616 as of Monday afternoon. Silver has fallen roughly 25% over the last three days.
In the accompanying video, Aaron and Henry discuss potential reasons for the steep sell-off, including:
A stronger dollar due to last week's Fed announcement that it will undertake "Operation Twist," as well as the continued worries over the European debt crisis. (See: "Very Unusual" Fed Action Fails To Boost Animal Spirits: Dow Drops 285);
Higher margin requirements for gold trades that were announced Friday by the CME Group;
And simply, the bubble may finally have burst for precious metals like gold and silver.
But there is really no way to know whether commodities are at the beginning of a sharp, sustained decline or if this sell-off is just a minor blip in a long-term secular bull market.
Among the people who are confident in the direction of all commodities is Jeremy Grantham, chairman of Boston-based investment manager GMO LLC. He's of the mind that resources will grow more scarce as global populations continue to rise, keeping prices higher.
Tell us what you think in the comments section below. Are gold and other commodities merely taking a break, or are they turning lower for the foreseeable future?
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