Jeffrey Saut’s note regarding the carnage in the gold market: Yesterday, however, I got some really interesting questions. One came from a portfolio manager who wanted to know, “Have you heard any chatter regarding margin calls within gold and or the gold miner sector?” Given the carnage in the gold space, it is certainly a question to ponder. In my view, gold entered a bear market in 2012, but the recent Gold Gotcha’ began in earnest last June when the Chinese stock market lost about one-third of its value.
As it turns out, Chinese brokerage firms were allowing gold to be used as collateral in margin accounts for participants to buy Chinese stocks. When the Chinese stock market started to melt down, not only were stocks liquidated, but so was gold. That exacerbated the decline in gold prices around the world with a concurrent “hit” to the gold mining stocks. As a sidebar, a 50% retracement of gold’s entire 2001-2011 rally comes in at $1088 per ounce.
Please follow SGT Report on Twitter & help share the message.