BNN had a great interview from George Gero this morning on the reasons on the recent gold and silver plunge: Gold has had many many headwinds, margin increases on both gold and silver, and institutions selling gold to stem losses. The ECB annual 500 tons of gold sales each September end this week, plus options expirations. Well, that was a very good time to take profits.
"Gold was set for its biggest three-day loss in 28 years on Monday, as investors fled commodity markets in a scramble to secure cash in the face of mounting fear over the impact of a potential Greek debt default on the rest of the euro zone. [...]
In the last three days alone, gold has fallen by nearly 10 percent in its largest three-day slide since February 1983 and implied volatility has risen to a 2-1/2 year high.
Spot gold was down 3.0 percent early this morning at $1,621.49 US an ounce, having fallen earlier by as much as 7.4 percent, putting the difference between the intraday high and low at $128.40, the largest daily price swing on record.
"It shows you that at times of extreme stress, there is not a suitable substitute to liquidity and although gold is liquid by metal standards, in comparison to treasuries, when you get this kind of flight to cash, then it really is cash that counts and that means U.S. dollars," said Credit Suisse analyst Tom Kendall.
"The markets are going to continue to react this week to the political situation within Europe and I don't see any quick resolution or stimulus coming to the markets."
"The rise in volatility taking place in the gold price was clearly an indication that gold was no longer a low-risk asset. So there are a few signs there that would have given you pause for thought, but inevitably when the move happens, everyone is taken a little bit by surprise," said Natixis commodities strategist Nic Brown.
"I would suggest that part of what is happening is a collective move away from commodities by investors. The fact that there is carnage going on across the commodities spectrum indicates there are a fair few investors who are getting cold feet at this stage and that has hit some precious metals disproportionately," he said.
Last week's data on investment in U.S. gold futures shows speculators cut their holdings to their lowest level in over two years, as reflected by the fall in net non-commercial open interest on COMEX.
[...] Gold is often sold off as a means of raising dollars when funding conditions deteriorate, much as they did in late 2008 with the onset of the credit crunch that ensued from banks withholding lending because of their concern over counterparty exposure to toxic U.S. mortgage-backed assets.
Silver came under fire, falling by as much as 16 percent at one point in the day and set for its worst three-day fall on record, having lost more than 25 percent in this period.