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partyboy
6th May 10, 11:59 PM
And they've all been tied
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High-Speed Trading Glitch Costs Investors Billions
By NELSON D. SCHWARTZ and LOUISE STORY

The glitch that sent markets tumbling Thursday was years in the making, driven by the rise of computers that transformed stock trading more in the last 20 years than in the previous 200.

The old system of floor traders matching buyers and sellers has been replaced by machines that process trades automatically, speeding the flow of buy and sell orders but also sometimes facilitating the kind of unexplained volatility that roiled markets Thursday.

“We have a market that responds in milliseconds, but the humans monitoring respond in minutes, and unfortunately billions of dollars of damage can occur in the meantime,” said James Angel, a professor of finance at the McDonough School of Business at Georgetown University.

In recent years, what is known as high-frequency trading — rapid automated buying and selling — has taken off and now accounts for 50 to 75 percent of daily trading volume. At the same time, new electronic exchanges have taken over much of the volume that used to be handled by the New York Stock Exchange.

In fact, more than 60 percent of trading in stocks listed on the New York Stock Exchange takes place on separate computerized exchanges.

Many questions were left unanswered even hours after the end of the trading day. Who or what was the culprit? Why did markets spin out of control so rapidly? What needs to be done to prevent this from happening again?

The Securities and Exchange Commission and the Commodity Futures Trading Commission said they were examining the cause of the unusual trading activity.

Mary L. Schapiro, chairwoman of the S.E.C., and Gary Gensler, the head of the C.F.T.C., held conference calls with overseers of the exchanges who were reviewing trading tapes from the day.

One official said they identified “a huge, anomalous, unexplained surge in selling, it looks like in Chicago,” about 2:45 p.m. The source remained unknown, but that jolt apparently set off trading based on computer algorithms, which in turn rippled across indexes and spiraled out of control.

Many firms have computers that are programmed to automatically place buy or sell orders based on a variety of things that happen in the markets. Some of the simplest triggers are set off when a stock drops or rises a certain percent in the trading day, or when an index moves a specific amount.

But these orders can have a cascading effect. For example, if enough programs place sell orders when the overall market is down, say, 4 percent in a single day, those orders could push the market down even more — and set off programs that do not kick in until the market is down 5 percent, which in turn can have the effect of pushing stocks down even more.

Some circuit breakers do exist, a legacy of the reforms made following the 1987 stock market crash, but they only kick in after a huge drop — and only at certain hours. Before 2 p.m., a 10 percent drop in the Dow causes New York Stock Exchange to halt trading for one hour. Between 2 p.m. and 2:30 p.m., the pause shrinks to a half-hour and after 2:30, there is no halt in trading.

If there is a 20 percent drop, trading stops for two hours before 1 p.m. and by one hour between 1 and 2 p.m. After 2 p.m., the market closes.

Glitches in individual stocks have happened before — what was different Thursday was the scale of the problem. In April 2009, shares of Dendreon, a small biotech company, dived by more than 50 percent in less than two minutes, just before a presentation by Dendreon executives, Mr. Angel said.

Trading was halted on the Nasdaq, where Dendreon is listed, but there was no news as it turned out, Mr. Angel said, and when trading resumed the stock returned to its previous levels. “It took a human two minutes to discover something was wrong and halt trading,” he said.

What happened Thursday was different because it moved hundreds of stocks sharply at the same time, many of them blue chips that form the foundation of individual investors portfolios as well as major indexes like the Dow and the Standard & Poor’s 500-stock index.

The near-instantaneous swings left brokers dumbfounded. Dermott W. Clancy, who runs a New York Stock Exchange broker, said Thursday was one of the five worst days he has seen in 24 years in the business. When the market dropped across all indexes in a matter of minutes, customers were calling him nonstop.

“They’re calling saying ‘Is there something I’m missing? Is there somebody valuing these securities at this level? Is there some news in the marketplace I’m not aware of?’ ” he said.

The answer — that it all started with an apparent error — infuriated Mr. Clancy. “The market was never down one thousand points,” he said. “Procter & Gamble should never have traded at $39. But a lot of people lost money as if the prices were meant to drop.”

For a short while, traders started to distrust what they were seeing.

“There was no pricing mechanism,” Mr. Clancy said. “There was nothing. No one knew what anything was worth. You didn’t know where to buy a stock or sell a stock.”

Jackie Calmes and Binyamin Appelbaum in Washington contributed reporting.

http://www.nytimes.com/2010/05/07/business/economy/07trade.html

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wtf??? am I missing something here? they've been doing this for how long and they don't have *better* safe guards for something like this in place? I'm glad I didn't do any trading this week...

SoulMechanic
7th May 10, 12:06 AM
This shit made me miss my favorite show.
Oh and I think Partyboy is half in the bag.

HappyOldGuy
7th May 10, 12:12 AM
What can we say, Cullion and I made a harmless little bet, and it just got a little out of control.

Not only did we make a silly float to decimal error and cost investors a trillion dollars, but I still owe him a pint for winning.

Ajamil
7th May 10, 05:50 AM
The proper bet for ruining lives by way of the stock exchange is $1.

partyboy
7th May 10, 07:42 AM
USA Today's headline:


THE MACHINES JUST TOOK OVER

lol, skynet

Ajamil
7th May 10, 08:08 AM
Me mah took money out of her Roth IRA to help pay for a new deck the day before this happened. It's always fun when a bad idea turns out to be a very good one.

Cullion
7th May 10, 08:11 AM
It's going to happen again, because the US stock market is wildly overvalued.

Tom Kagan
7th May 10, 11:08 AM
FYI: The correct term on Wall Street for this "glitch" is: fat fingering.

Craigypooh
8th May 10, 04:49 AM
It's going to happen again, because the US stock market is wildly overvalued.

So true.

Investors just seem to be ignoring the massive government and consumer debt, the huge trade deficit and the enormous fiscal deficit. These things must be fixed and it's not going to be pleasant for anyone who own's shares.

HappyOldGuy
8th May 10, 12:18 PM
So true.

Investors just seem to be ignoring the massive government and consumer debt, the huge trade deficit and the enormous fiscal deficit. These things must be fixed and it's not going to be pleasant for anyone who own's shares.

The problem is that the money has to go somewhere. The US stock market is still relatively appealing compared to other places. Most other stable economies are in worse shape than the US, and if you really expect something awful to happen to the US economy, you probably aren't investing in bonds.

Cullion
8th May 10, 02:02 PM
Whilst the stock market is overvalued, there's always a reason why the prices are so high. Question is how long will it be true ?

I still believe that the real bottom of a stock market crash is found in the dividend yield.

WarPhalange
8th May 10, 02:22 PM
Many firms have computers that are programmed to automatically place buy or sell orders based on a variety of things that happen in the markets. Some of the simplest triggers are set off when a stock drops or rises a certain percent in the trading day, or when an index moves a specific amount.

Dumbest thing I've ever heard.

Trying to computerize the complex decisions people make (like for example "Steve Jobs had a heart attack? Should I sell ALL my Apple stock???) is impossible. How people can think this is a good idea is beyond me.

Cullion
8th May 10, 02:55 PM
A human might well trade by reading the newspaper early that morning and thinking 'I have my own theory about the effect of the British hung parliament on their bond prices', but a machine doesn't have to be able to reason in that way to be useful.

When stock prices change as fast as they do, having a machine follow your portfolio with very simple trading rules like 'keep selling this index as long as the sale realises X% profit after all transaction fees and taxes are taken into account'.

A machine can do that with many stocks, many times a second, so you can make a profit on very small movements, just because the machine's soo fast and doesn't make mental arithmetic errors, or forget to do stuff. The machine doesn't necessarily have to try and understand why the movements are occurring like a human economist cooking up his theory about the effect of X on Y that morning.

Now people do try to do textual analysis on news feeds to get machines to react to news items in a way closer to what you describe, but that isn't the only kind of trading that goes on and machines can compete in a different way.

Craigypooh
12th May 10, 04:13 PM
The problem is that the money has to go somewhere. The US stock market is still relatively appealing compared to other places. Most other stable economies are in worse shape than the US, and if you really expect something awful to happen to the US economy, you probably aren't investing in bonds.

Gold, put options, cash in the largest banks, Chinese government bonds. Or spend it on a new flat screen TV and an X-box, so at least you'll have something to do while you're waiting for the economy to turn round.

HappyOldGuy
12th May 10, 04:24 PM
Gold, put options, cash in the largest banks, Chinese government bonds. Or spend it on a new flat screen TV and an X-box, so at least you'll have something to do while you're waiting for the economy to turn round.

I could go into the reasons why none of those are good options, but that isn't relevant. What is relevant is that the prices of the market prove that investors don't think they are good options.

Craigypooh
12th May 10, 04:36 PM
I could go into the reasons why none of those are good options, but that isn't relevant. What is relevant is that the prices of the market prove that investors don't think they are good options.

The market price is nothing more than the price at which marginal trades in listed securities will change hands. It proves nothing.

HappyOldGuy
12th May 10, 04:44 PM
The market price is nothing more than the price at which marginal trades in listed securities will change hands. It proves nothing.

So if the price you can sell somehting is not the market value, exactly what do you think is?

Craigypooh
12th May 10, 04:54 PM
So if the price you can sell somehting is not the market value, exactly what do you think is?

You might want to read my post again - that is what I said the market value is.

Cullion
12th May 10, 07:01 PM
Efficient market hypothesis is an overeducated dork's way of saying 'I know which horse will win, I just saw the race!'.

yeah.

HappyOldGuy
12th May 10, 09:32 PM
Efficient market hypothesis is an overeducated dork's way of saying 'I know which horse will win, I just saw the race!'.

yeah.
There are all sorts of reasons not to trust the wisdom of crowds. But it's still a way better bet than 'cause some guy on the internet said so.'

Craigypooh
13th May 10, 01:31 AM
There are all sorts of reasons not to trust the wisdom of crowds. But it's still a way better bet than 'cause some guy on the internet said so.'

Nobody is arguing that getting your investment advice from anonymous posters on an internet forum is the way to endless riches. What's your point?

Cullion
13th May 10, 06:03 AM
There are all sorts of reasons not to trust the wisdom of crowds. But it's still a way better bet than 'cause some guy on the internet said so.'

Well certainly.

If I was interested in anything other than paying off debt at the moment, I don't think I'd buy gold, because whilst I understand and agree with the commonly quoted reasons for it's price increase, I feel like I'd be coming to that game too late right now.

BadUglyMagic
13th May 10, 02:12 PM
Well certainly.

If I was interested in anything other than paying off debt at the moment, I don't think I'd buy gold, because whilst I understand and agree with the commonly quoted reasons for it's price increase, I feel like I'd be coming to that game too late right now.

Buy shares in companies that mine/process and maybe sell gold or platinum or rare earth metals.

Feryk
13th May 10, 02:19 PM
It's going to happen again, because the US stock market is wildly overvalued.

This is going to be one of those threads where I yell at you alot isn't it?

I was just starting to think you were beginning to make sense, too.

Care to make your case why you think this is so?

Feryk
13th May 10, 02:20 PM
Buy shares in companies that mine/process and maybe sell gold or platinum or rare earth metals.

Because you think precious metals are undervalued? Why, exactly?

Feryk
13th May 10, 02:23 PM
So true.

Investors just seem to be ignoring the massive government and consumer debt, the huge trade deficit and the enormous fiscal deficit. These things must be fixed and it's not going to be pleasant for anyone who own's shares.

Compared to?

Why would it be more pleasant for someone hording cash in the bank, for example?

Or owning real estate?

Or holding bonds?

Or gold?

Craigypooh
13th May 10, 03:05 PM
Compared to?

Why would it be more pleasant for someone hording cash in the bank, for example?

Or owning real estate?

Or holding bonds?

Or gold?

Because share prices are far more volatile than any of those assets and so will fall further in the event that our governments fail to guide us faithfully out of our current economic woes.

Cullion
13th May 10, 03:48 PM
This is going to be one of those threads where I yell at you alot isn't it?

I was just starting to think you were beginning to make sense, too.

Care to make your case why you think this is so?

Low dividend yield.

Feryk
13th May 10, 03:57 PM
Because share prices are far more volatile than any of those assets and so will fall further in the event that our governments fail to guide us faithfully out of our current economic woes.

Price volatility IS an issue with stocks, but I would argue that the inflationary effect of the current monetary policy would put cash in a serious bind, and virtually guarantee losses over the next few years. Already the USD buys 20% less (in CDN $ terms) than it did four years ago. That means energy prices, and raw material input costs are going up for you (and they have been).

Gold is a typical inflation hedge, but over a long period of time, it doesn't do much better than inflation.

Interest rates are at all time lows. IF the monetary policy begins to work, eventually the US will have to raise interest rates...which means buying bonds now is probably not a great long term strategy. If it doesn't work, you are in for a decade or so of shitty performance in your economy, and crappy rates of return on all asset classes.

Feryk
13th May 10, 04:05 PM
Low dividend yield.


Good point. I would have expected yields to start rising. Am looking into the current trend. I've found several analysts reports from December predicting a rise, but no evidence that it's actually happened yet. I'll get back to you on this.

Cullion
13th May 10, 04:12 PM
Gold does better than monetary inflation of a particular currency over the longest term, because most fiat currencies completely collapse after a few centuries and the notes are then worthless, except as collector's curios with a tiny demand. I don't think any has lasted more than 500 years.

Cullion
13th May 10, 04:13 PM
Good point. I would have expected yields to start rising. Am looking into the current trend. I've found several analysts reports from December predicting a rise, but no evidence that it's actually happened yet. I'll get back to you on this.

I think a lot of stimulus money may have found its way into stock prices, thus stretching the yields.

HappyOldGuy
13th May 10, 04:37 PM
Gold does better than monetary inflation of a particular currency over the longest term, because most fiat currencies completely collapse after a few centuries and the notes are then worthless, except as collector's curios with a tiny demand. I don't think any has lasted more than 500 years.

This feller disagrees pretty strongly. Complete with pretty charts and graphs.

http://en.wikipedia.org/wiki/Stocks_for_the_Long_Run

And you are inventing a history for paper currency that really doesn't exist. It doesn't have a 500 year history in europe. And national notes don't have a 500 year history anywhere.

Feryk
13th May 10, 04:52 PM
Most Nations don't have a 500 year history (yes, I know England does, fancypants!)

Cullion
13th May 10, 05:07 PM
You're assuming I was only referring to paper currencies when I talk about fiat currency.

http://dailyreckoning.com/fiat-currency/

I did not compare Gold to stocks in my post.

However, your link gives a table saying that gold has deflated in value by 0.4% on average.

In 1873, 1oz cost $20.67 (price set by congress) which lasted until around 1930

Today it hovers around $1200.

This is the Gold Price since Nixon converted your dollar into a completely free-floating currency: 'In God we trust'

http://goldprice.org/charts/history/gold_all_data_o_usd.png

It's outrun CPI consumer inflation since then overall, although the dips in the graph correspond to stock market bubbles.

Here is a graph of the US monetary base in billions since 1917

http://www.chartingstocks.net/wp-content/uploads/2009/03/money-supply.gif

This thread really ought to be about that spike at the end will cause.

Feryk
13th May 10, 05:16 PM
Using Daily Reckoning as a source is like quoting TMZ for in depth journalism.

Cullion
13th May 10, 05:22 PM
meh, I don't care. Dispute a point of fact, or don't dispute a point of fact.

Feryk
13th May 10, 05:44 PM
http://upload.wikimedia.org/wikipedia/commons/thumb/d/df/Gold_price.png/800px-Gold_price.png

Look at the 2006 USD price of gold from 1973 - 2006. I read it as moving from 400ish to a little over 600 once inflation is held constant. That reads as a 50% price appreciation in real dollars over a 33 period gross return.
Not exactly shooting the lights out.

EDIT- Sorry, the scales are not coming through for some reason

Find it here: http://upload.wikimedia.org/wikipedia/commons/thumb/d/df/Gold_price.png/800px-Gold_price.png

Cullion
13th May 10, 05:55 PM
Reread my post and look at the graph with the longer time axis.

BadUglyMagic
13th May 10, 11:16 PM
Because you think precious metals are undervalued? Why, exactly?


The revenue and thus share value of a company mining/processing gold tends to increase when the price of gold increases. It costs far more to actually buy the gold, hold it and then sell it. The shares have two possible revenue yields to the holder of record. The first is appreciation, the second is dividends.


Pull some share price history of companies actively mining. I could be mistaken.

BadUglyMagic
13th May 10, 11:25 PM
Interestingly enough, thedailyreckoning.com pimps gold.

Craigypooh
14th May 10, 01:38 AM
Price volatility IS an issue with stocks, but I would argue that the inflationary effect of the current monetary policy would put cash in a serious bind, and virtually guarantee losses over the next few years. Already the USD buys 20% less (in CDN $ terms) than it did four years ago. That means energy prices, and raw material input costs are going up for you (and they have been).

Gold is a typical inflation hedge, but over a long period of time, it doesn't do much better than inflation.

Interest rates are at all time lows. IF the monetary policy begins to work, eventually the US will have to raise interest rates...which means buying bonds now is probably not a great long term strategy. If it doesn't work, you are in for a decade or so of shitty performance in your economy, and crappy rates of return on all asset classes.

There is no hiding place from risk right now.

Here's the Governor of the Bank of England's view:

"The financial crisis is far from over. As debt has moved from the financial to the public sector, the banking crisis has turned into a potential sovereign debt crisis. After several months of drift over the problems in Greece, last weekend produced a comprehensive package to stem the risk of contagion to other euro-area countries. But the underlying problems facing the world economy remain,"

He was also quoted as saying whoever won our recent election would become so unpopular that they would be out of power for a generation.

When risk is high then avoiding the riskiest investments is a good idea, unless you think that risk is fully priced into the market (given markets are close to their pre-crisis highs that does seem to be the case).

Disclaimer:


There are all sorts of reasons not to trust the wisdom of crowds. But it's still a way better bet than 'cause some guy on the internet said so.'

Feryk
14th May 10, 11:33 AM
There is no hiding place from risk right now.

When risk is high then avoiding the riskiest investments is a good idea, unless you think that risk is fully priced into the market (given markets are close to their pre-crisis highs that does seem to be the case).

Disclaimer:

Actually, the best approach is to own ALL asset classes. To what degree is the issue. Proper asset allocation is a better approach than owning all of one asset class that you percieve to be 'less risky'. The type of risk for all the asset classes I mentioned is different, so they will perform differently no matter what the market does.

For example:

If you just did something simple like:

40% equities
20% Bonds
20% Gold
20% Cash

You would have something that would profit no matter what happens. For example, if the market were to tank because of the Sovereign Debt Crisis.

- Stocks go down, probably sharply - for a short period of time (typically 30 months or less).

- If Sovereign Debt is the issue then Bond rates will have to rise to compensate for the extra risk, meaning that any bonds you currently own will go down.

+ The price of Gold will typically surge as people 'fly to quality'.

+ The USD benefits from a European economic crisis. If it goes so far as to have the Euro disintegrate, then the USD will remain as the 'worlds currency', and will probably rise compared to European currencies.

If the market does not tank, but EuroTarp is deemed to be having an impact then:

+ Stocks go up. It will take time, but earnings should rise as people gain confidence in their economy and start spending money. This SHOULD increase dividend yields as well.

- Bonds go down. If the economy starts to heat up, interest rates will rise to compensate. This will take time, and in the meantime, you will still recover your interest yield, but the bond price will drop.

- Gold will go down. Economic stability is not the best scenario for gold prices. It might just stay where it is, but it should not grow appreciably in a stable economy. Considering that it was trading at $200/oz a few years ago, I would argue that gold could go down easily in this scenario.

- Cash. If the economy is growing, cash will sit there. If inflation is an issue, it will lose it's buying power. If not, it won't perform, assuming that forex rates don't change.

If the economy stagnates (neither growth nor crisis) then:

- Stocks will be flat. Dividend yields will give you some gain, but a selective approach is probably best.

+ Bonds will pay yields. Interest rates probably will not move appreciably, which means that the bond yields will be probably the highest coupon you can expect in this environment

- Range bound gold prices. If you actively trade it, you can probably do well, but it probably won't move much here.

- Cash. Again, assuming forex doesn't change, it will sit there, but it won't lose it's buying power. Having a reserve to buy things that are at the low end of the trading range would make sense here.

That's very basic portfolio theory. I have seen this work in the real world. You won't shoot the lights out for performance, but you won't have to worry about waking up to see everything gone out the window either.

Feryk
14th May 10, 12:14 PM
Regarding Gold:

The Fear Premium of Gold
Dian L. Chu

5/14/2010

Email this article | Print this article

Gold prices were hitting record highs as gold’s appeal as a safe haven asset exploded. June gold was down 1.1% to settle at $1,229.20 an ounce on Thursday after hitting a record high of $1,250 in previous session.

The metal’s surge was driven primarily by concern that an almost $1 trillion loan package in Europe will slow the region’s growth and debase its currency. Adjusted for inflation, gold is near its highest since April 1981, based on data at Bloomberg.

Record Investment Boosted by ETFs

Global investors, led by the US, last year bought a record 228.5 tons of gold in the form of bullion coins, up from 77.4 tons in 2000, according to GFMS, the London-based precious metals consultancy.

Exchange-traded funds (ETFs) also have made it convenient for retail investors to get in on gold. Holdings in physically backed gold exchange traded funds are at record highs after some ETFs last week experienced their biggest inflows in over a year.

The largest gold ETF–the SPDR Gold Trust (GLD)–recorded its highest daily inflow since early 2009 last week with total holdings hitting a record 1,185.78 tons.

Pattern Change – Gold & Stocks

Gold tends to rise when investors are uneasy about risky investments, so gold often gains as stocks fall. However, stocks continued to recover from last week’s big drop, while gold also broke new highs. (Chart 1)

Meanwhile, the euro broke through the 14-month low reached against the dollar last week touching $1.2516. Some analysts say a test of the euro’s 2008 low of $1.2330 looks likely in coming sessions. These are clear signals that investors’ anxiety is with the euro.

Pattern Change – Gold, Dollar & Euro

Furthermore, gold prices usually go down when the dollar strengthens. But that inverse relationship gold previously has with the dollar has now been switched to the euro since late last year due to the sovereign debt crisis in Greece and Europe (Chart 1).

The lack of faith in the sustainability of the euro has been driving investors to flee the euro and go into gold, stocks and the U.S. dollar. Nevertheless, this is not indicative of any fundamental strength in the U.S. currency. Rather, it’s “relatively stronger” against the embattled euro.

Similar to Crude – Gold Has a High “P/E Ratio”

Now, many analysts expect gold prices to fall back near $800 an ounce over the next ten or twelve months, according to Jon Nadler at Kitco Bullion Dealers. Nadler thinks the economic fundamentals for gold are “completely upside down.” Demand from jewelry has been weak, and that much of gold’s recent strength has been speculative in nature.

However, similar to crude oil, gold also has become an asset class in itself and trades beyond market fundamentals. Gold has long been a safe haven when world markets are gripped by fear. Those fear factors—outlined below–if prolonged, will most likely drive investors to gold and send gold’s P/E ratio soaring far beyond the demand/supply fundamentals.

Fear Factor #1 – Inflation

Analysts say there’s a lot of fear on the part of the Europeans that moves to mitigate debt crisis will only lead to more problems. FT.com reported that traders and coin dealers said buying was exceptionally strong from German and Swiss investors.

The spike appears to reflect concerns in Germany about the potential inflationary impact of the European Central Bank’s decision to buy up euro zone government bonds in the wake of the Greek debt crisis. Outside the euro zone, dealers said that demand was also strong in North America.

Fear Factor #2 – Fiat Currencies Debase

The potential for other countries to be overwhelmed by debt also has investors rethinking paper currencies in general. Gold is vastly appealing as it has become the only reserve currency not backed by debt.

It is this fear that has fueled the price of gold rising against every major currency, not just the thrashed euro. (Chart 2)

Fear Factor #3 – Mountainous Sovereign Debt
The European Monetary Union (EMU) collectively is facing €965 billion of debt redemption this year. Among them, three of the most heavily indebted PIIGS countries, Spain has to redeem €81 billion of debt this year, Italy at €267 billion, and Portugal with €19 billion. (Chart 3)

The Greek contagion may seem to be partially contained at the moment, but investors are still concerned widespread fiscal tightening could derail the already weak European economic recovery. Continued fears over the stability of the euro zone should further depress the euro and buoy gold prices.

The sheer scale of fiscal deficits facing numerous countries, including the United States, will likely prompt further diversification from fiat currencies and could ultimately propel gold to fresh highs.

Dissimilar to Crude – Not a Real Commodity

As noted earlier, gold is similar to crude oil with a built-in premium due to psychological factors. However, unlike crude oil, which is an essential energy source that the world cannot function without, gold has no real fundamental demand except for the use in jewelry.

Indeed, much of gold’s recent run-up has been driven by speculators, which means the correction(s) could be just as ferocious as the climb-up once investors’ fear subsides.

Short to Medium Term – Hinges on The Euro

Gold has risen 40% since the beginning of 2009, which suggests the market could be due for a correction. A dip in gold prices within the next 10 to 20 months is certainly possible as European and U.S. markets stabilize.

For now, the general trend over short term basis is still to the upside. But at this juncture, gold looks over-priced from a risk/reward standpoint. Retail/individual investors looking to invest in gold are best to stay on the sideline until a significant pullback, possibly at round $1,130. (Chart 4)

In the mean time, the 1,000-point drop in the Dow on May 6, although still under investigation, is a grim reminder that markets will likely be volatile going forward. Volatility breeds chaos and fear, and gold certainly has a proven record of thriving on both.

http://advisoranalyst.com/golds.php

TL:DR - Gold is highly priced, and could experience a pull back, but in a volatile market, it benefits from uncertainty. There are three principle reasons that people are buying gold right now: Inflation, Sovreign Debt, and debasing fiat currencies.