The last few weeks have seen sharp declines in the price of gold. Yes, you heard correctly. Gold, that supposed safe harbor that investors run to in uncertain times.
The attraction of gold is that, unlike currencies which can be printed by fiat in unlimited quantities, there is a finite amount of gold.
However, on Monday, gold had its worst two-day fall since 1983, by more than 9 percent with huge trading volumes. Since Friday, gold has fallen by 14% in what comes close to panic selling.
According to Deutsche Bank AG, the drop in the past two days was one of the largest corrections in modern history. Other commodities have also fallen in price, such as oil and aluminum.
Gold prices moved to record highs in 2011 as the recession deepened, but stock market rallies and incremental global growth have dented gold’s allure.
One of the catalysts behind the fall of gold was the economic implosion of Cyprus, which is being forced to sell most of its gold – 400 million Euros – to meet IMF and Eurozone bailout conditions.
It is not that the Cyprus sale is itself signifiant, butthe prospect of other troubled Eurozone economies having to sell their gold has caused many gold owners to sell.
Last, concern that the U.S. Federal Reserve would taper off its stimulus program i.e., stop printing money led many investors to sell gold.
Today, however, gold has rallied by almost $50 an ounce. This may be connected with yesterday’s terrorist attack in Boston. However, this is still nearly 30% from its record high in September 2011.
Time will tell whether gold can experience a sustained rebound in prices. Much I believe, will depend on what happens in Europe.
Recent Comments