WHAT OTHERS ARE THINKING
GoldCore explains the factors behind the recent fall in the gold price.
"There are few a factors that have led to gold falling in price in recent weeks despite the worsening Eurozone debt crisis and deteriorating economic data from the US and elsewhere.
Has Fallen Due To:
• Gold’s recent
weakness is in large part
due to a period of recent
dollar strength. While
gold in dollar terms has fallen
by 25% ($1,920 to $1,540), gold in euro terms is only down by 14% (from €1,374/oz to €1,210/oz).
• Oil weakness
– since the end of February,
oil has fallen from $111 a barrel to below $95
a barrel (NYMEX) today. Gold and oil are often correlated and many buy gold to hedge inflation that comes from
higher oil prices.
• Gold’s weakness
may also have been due to
wholesale liquidation in all risk
markets due another bout of "risk
off" which has seen
global equities and commodities
all come under pressure.
• Physical demand from retail investors
in the western world has slowed down as did demand from
India in recent weeks due to the increase in
taxes on bullion (since removed).
• Much of the selling has been
technical in nature – whereby
more speculative elements
on the COMEX who trade
gold on a proprietary basis have been selling gold due to the recent price weakness and the short term trend clearly being down. This has led to speculative longs now having their smallest positions since December 2008.
Outlook Remains Positive Due To:
• Central bank demand
remains robust and
central banks are set to be
net buyers of gold again in 2012.
• Demand for physical
gold remains robust in much of the Middle East, Asia
and the Far East with strong
demand seen in particular in Turkey (for
Middle East) and in Hong Kong (for China).
• Continuing zero
percent interest policies
in major developed economies
and negative real interest
rates remain the primary
driver of the gold market. As long as there are negative real interest rates in the US and in most
western economies, gold is
likely to continue to rise
• The problems in the Eurozone
are far from resolved and
the short term panacea policy ‘solutions’ of recent
months have almost certainly made matters worse and increased the risk of contagion in the Eurozone
whereby periphery nations
are forced to revert to
national currencies or
the euro itself is devalued and debased.
continues to believe that
gold may rise to the
inflation adjusted high of $2,400/oz in the coming years. Given the risk of contagion and
currency devaluations in
the Eurozone, euro gold should
rise to above
€2,000/oz in 2013.
Gold remains an essential diversification and those who have a 10% allocation
to gold bullion will be rewarded again
in the coming months as macroeconomic, monetary and systemic risk is likely to become elevated again."