Gold finds precarious foothold after drop

Gold coins at the Austrian auction house Dorotheum in Vienna. Photo: Reuters

Gold coins at the Austrian auction house Dorotheum in Vienna. Photo: Reuters

Gold rose 2.6 per cent yesterday as the market tried to find its feet after the previous session’s record-breaking daily loss, but even as physical buyers seized on the lower prices, investors feared more falls.

Gold has now fallen about 20 per cent so far this year after an unbroken 12 years of gains

Bullion posted its biggest ever daily drop in dollar terms on Monday, catching gold bulls, speculators and veteran investors by surprise.

Gold has now fallen about 20 per cent so far this year after an unbroken 12 years of gains and is some 28 per cent down from the record high hit in September 2011 at $1,920.30.

“I think everyone has to take a breath and it’s likely that we’ll see some rangebound trade. But there are people who still want to sell and they haven’t done so yet,” said David Govett, head of precious metals at Marex Spectron.

Spot gold dropped to $1,321.35 an ounce – its lowest since January 2011. It later reversed the losses with physical buying seen as the main influence to rally some 2.6 per cent to $1,387.01 by 1028 GMT.

The asset traditionally viewed as a safe-haven has been undermined by a proposed sale of Cypriot gold holdings and uncertainty over the US Federal Reserve’s stimulus programme. It failed to capitalise on tensions in the Korean Peninsula even as Pyongyang made new threats of military action.

“We still believe that the price has further to fall – the fundamental (non-speculative) value of gold is still a fraction of the current price,” Alan Miller, CIO of SCM Private, an investment management firm said in a note.

“One thing I have learnt about markets is that they rarely trade at fair value and they tend to overshoot (in both directions), so I really do not think you can estimate the amount of money ‘safely parked’ in gold which can quickly head for the exit when people realise they have bought into the latest bubble,” he added.

US gold futures for June delivery fell more than two per cent to the weakest in more than two years before rebounding.

Monday’s drop of around $125 per ounce in cash gold eclipsed the rout on January 22, 1980, a day after gold hit its then-record $850 on global panic over oil-led inflation due to Soviet intervention in Afghanistan and the Iranian revolution. Reuters market analyst for commodities and energy technicals, Wang Tao, expects gold to fall further to $1,245 per ounce.

Gold hit an 11-month high in October last year after the US Federal Reserve announced its third round of aggressive economic stimulus, raising fears the central bank’s money-printing to buy assets would stoke inflation. But the gain was erased by a rally in equities, talks the Fed could reduce its bullion-friendly bond buying programme, and concerns other indebted eurozone countries could follow Cyprus’s plan to sell bullion reserves to raise cash.

Heavy outflows on global gold exchange-traded funds, which cut holdings to their lowest in more than a year, could also mark the end of a love affair between gold and investors.

Physical dealers saw inquiries from jewellers following the latest sell-off, but there were no signs of buying related to tensions between the two Koreas or bombings in Boston, which killed three people.


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