The dumping of gold caught many investors completely unawares. The falls came on Friday April 12 and Monday April 15; they resulted in a break-out to the low-side of the trading range in which gold had traded for the last two months between $1560 and $1620. In toto it was a $230 fall or 15% to reach a low of $1334. A move of this size is significant.
The market is the market! Pardon the sexism but market moves (like some feminine decisions) do not have to be explained. They may apparently defy logic; but there are always factors, some emotional, that influence the outcome. Some have more bearing than others.
- The sell-off was triggered by a “sell” classification by Goldman Sachs a week ago. It is uncertain whether this was a smart prediction, reached in spite of the threat of warfare on the Korean Peninsula, or a self-fulfilling prophecy.
- Since reaching an all-time high of $1921 in September 2011, the price of gold has been static trading in a range between $1550 and $1800. George Soros considered when the euro was close to collapse last year, and the gold price way above the historic price, that gold was no longer a safe haven for investors. So he cut his stake in the exchange-traded fund (ETF) SPDR gold fund, by 55%. By selling, if lower prices eventuate, larger players can then buy at more favourable prices when geo-political instability threatens..
- Chinese GPD data suggested that Chinese growth was stalling, but the decrease was only small.
- The Japanese have traded the yen lower, taking gold with it. This has created tension with the US; the US is also intent on keeping its currency low.
- A decline in the gold price increases the appeal of other asset classes.
- The lower gold price may well also result in a lower Australia dollar. This could be beneficial for Australian industry and exports.
How much further is the price of gold likely to decline?
Based on the eight and a half-year increase in the gold price, from $319 in April 2003, to $1921 in September 2011, the present retracement to $1334 was the 38.2% Fiobonacci level.
Most retracements rebound between this level and the 61.8% level ($931). 50% retracement corresponds to a gold price of $1120.
With the RSI at only 19, a rebound is likely. For those who are still long in gold, the safest course of action is to sell then, expecting another leg down for the gold-price.
For those looking to buy, it is likely to be worth holding out for an entry between 930 and 1120.
- What will a collapsing gold price do to gold production? (sgtreport.com)
- Market shivers, as gold prices plunge across the globe (aworldchaos.wordpress.com)
- Sharpest Drop in Gold Price Since Start Of Bull Market (rvnewstoday.com)
- Gold price rout could continue (news.theage.com.au)
- Gold has its biggest fall in 30 years (philosophers-stone.co.uk)
- Gold price slumps to 15-month low (news.in.msn.com)
- Gold, share price drop baffles investors (news.theage.com.au)
- How to cash in on gold’s glitter amid the meltdown (profit.ndtv.com)
- The gold price crash is further evidence of market rigging (blogs.telegraph.co.uk)
- Gold Is Tanking AGAIN (businessinsider.com)