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SPOT MARKET gold prices fell to a two-year low below $1400 an
ounce Monday morning, extending Friday's drop that took gold into bear market
territory under the definition of a 20% fall from its peak.
Silver fell as low as $23.11 an ounce, its lowest
level since October 2010, as stocks and commodities also fell while the
Dollar gained.
Gold in Sterling meantime also fell to two-year lows
near £900 an ounce, while gold in Euros fell to €1061 an ounce,
its lowest level since July 2011.
Last Friday saw the Dollar gold price end the day
down 5%. By late Monday morning in London gold had dropped another 6% from
where it opened in Asian trading this morning.
"Previous episodes of gold dropping more than
3% in one day were typically followed by either a sharp rebound or a period
of consolidation," says a note from UBS.
"Given the forcefulness of the move over the
last couple days, some correction may be in store up ahead. But given the
damage to market sentiment, gold would have to work that much harder to
rebuild trust. With no clear catalysts expected in the immediate future, the
burden falls on physical markets and long-term holders: how they respond to
these lower levels will be key in determining gold's
journey from here."
The world's largest gold exchange traded fund SPDR
Gold Trust (ticker: GLD) ended Friday with 1158.6 tonnes
of gold backing its shares, the lowest volume since April 2010.
Over in India, the world's biggest gold buying
nation traditionally, gold imports in the first quarter of the year were down
nearly 24% from the same period last year, according to the Bombay Bullion
Association. In January India's government raised the import duty on gold to
6%.
Compared to the start of last week, the gold price
is down around 12%, while silver is down 15%.
"The demise of gold is still at an early
stage," reckons ABN Amro commodities
strategist Georgette Boele.
"Other assets will become increasingly more attractive
as the growth outlook improves."
"Some of the key pillars of the gold bull
market look like they're suffering fatigue," adds Peter Richardson,
chief metals economist at Morgan Stanley Australia.
"The gold market's probably started to price in
the prospect that beleaguered members of the Eurozone might be forced to sell
gold to raise part of the funding, and there are much bigger holders in that
category than Cyprus."
"This may be the correction that gold
needs," Suggests legendary hedge fund manager Jim Rogers.
"If it goes down enough, I will start buying
it."
"I love the fact that gold is finally breaking
down," adds Gloom, Boom & Doom Report publisher Marc Faber,
"because that will offer an excellent buying opportunity...the bull
market in gold is not completed."
The Greek economy meantime is expected to return to
growth by 2014, the troika of international lenders the European Commission,
the European Central Bank and the International Monetary Fund said Monday.
Over in China the Shanghai Gold Exchange said Monday
it may increase trading margins on gold and silver contracts as a result of
sharp price falls.
China's economy meantime grew at an annualized rate
of 7.7% in the first quarter, down from 7.9% in the final three months of
2012, official figures published Monday show.
"Industrial production is unexpectedly weak and
that's the source of weakness in GDP," says Tim Condon, Singapore-based
head of Asian economic research at ING.
"Based on this, the consensus forecasts for GDP
are going to be headed lower and we'll certainly be looking at ours."
Ben Traynor
Editor of Gold News, the analysis and investment
research site from world-leading gold ownership service BullionVault,
Ben
Traynor was formerly editor of the Fleet Street
Letter, the UK's longest-running investment letter. A Cambridge
economics graduate, he is a professional writer and editor with a specialist
interest in monetary economics. Ben can be found on Google+
(c) BullionVault 2013
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