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- Dubai 04:26 05:44 12:20 15:47 18:50 20:08
Gold prices got hammered on Thursday, sinking to $1,277 per troy ounce by 11.30pm UAE time, having come under massive seling pressure amid a bearish global sentiment. Precious metal bulls got mauled badly today as gold tanked by as much as 6.5 per cent, or $89 per troy ounce during the session.
The yellow metal is now down by $414 an ounce, or over 24 per cent, since hitting a 2013 high of $1,692/oz on January 22. This means that investors that bought into the precious metal in January this year have lost almost a quarter of their capital, with analysts expecting further agony for the gold bull in the days to come.
Spot gold price is now at a 33-month low, with these levels not seen since September 21, 2010. Investors will also remember that gold made its famous all-time high of $1,923/oz in September 2011, which means that the precious metal has shed a massive 33.5 per cent, or a third of its value, in less than two years (21 months).
A myriad of factors, including a very real possibility of the US Federal Reserve curtailing the quantitative easing program in the near future, an overbearing tax on gold consumption in India (world's largest gold consumer), and a strong dollar are all being cited as the reasons behind gold’s recent plunge.
Fed chairman Ben Bernanke’s latest comments about a recovery in the US economy are being taken by the market as a signal that the $85-billion-a-month quantitative easing programme will be curtailed sooner than later, which will mean a drying up of the flow of funds into safe haven metals, especially gold.
The precious metal began sinking after Fed Chairman Ben Bernanke said at a press conference yesterday that “the committee currently anticipates that it will be appropriate to moderate the monthly pace of purchases later this year.”
“There are many reasons why the bubble has burst, and why gold prices are likely to move much lower, toward $1,000 by 2015,” Roubini wrote in a column published earlier this month in The Guardian newspaper.
He offered a number of reasons for his belief that gold has lost its shine, and prices are going to move lower, eventually.
“First, gold prices tend to spike when there are serious economic, financial and geopolitical risks in the global economy,” he said. Of course, with recent signs and data all pointing to a recovery in the non-EU world, investors will want to pull their money out of safe haven commodities such as gold and plug them back into riskier assets such as equities and real estate.
“Second, gold performs best when there is a risk of high inflation, as its popularity as a store of value increases,” Roubini said. According to him, globally, inflation is sinking and will continue to do so.
“Third, unlike other assets, gold does not provide any income,” he said. You can’t argue with that logic. While Roubini goes on to list a number of other factors that will keep a lid on gold prices in the short term and push it towards the $1,000-mark in the mid-term, the crux of the argument remained that the gold bubble is bursting, whether you like it or not.
“The run-up in gold prices in recent years – from $800 per ounce in early 2009 to above $1,900 in the autumn of 2011 – had all the features of a bubble,” is how he began his column.
“While gold prices may temporarily move higher in the next few years, they will be very volatile and will trend lower over time as the global economy mends itself. The gold rush is over,” is how he concluded.
Do you believe him? Let us know why or why not in comments below.
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