Gold rally loses steam, prices drop

Spot gold prices tumbled 2 per cent or nearly $36 yesterday to close at $1,776.40 per ounce, the yellow metal’s lowest close this month, and have declined a further $7 per ounce to $1,669.6/oz in early trade this morning as the metal’s safe have allure seems to be fading among international investors.

Even the decline below the technical support level of $1,770 per ounce failed to bring back bargain hunters to the market, and some analysts now believe that gold’s recent ascent – which has seen its prices double since the global economic crisis began in 2008 – has been too soon and too fast, and that the price bubble is in the process of deflating to realistic levels.

Gold is now down about $150 per ounce from its all-time high of about $1,920 per ounce that it made on August 22, with global analysts’ opinion split on the future direction of the metal even as a section of experts has been warning of a violent correction for some time now.

Spot gold prices, which had shot up more than 33 per cent year-to-date by late August, are now up 25 per cent YTD after the recent corrections, with a growing number of analysts warning of an asset bubble bursting anytime on speculative buying.

With the Euro Zone crisis worsening in the past week – a Greek tragedy now seems imminent, with the market pricing a more than 94 per cent probability of default, according to CMA’s Sovereign Risk Monitor – investors have, uncharacteristically, skipped gold and seem to have developed a liking for the greenback, which has appreciated substantially in the past months.

The euro has been weakening ever since the second round of trouble at some of Euro Zone’s economies has come under the spotlight, with Standard & Poor’s yesterday cutting Italy’s credit rating by one level, on mounting government debt and weakening growth prospects, sending the euro and Asian stocks lower.

The primary beneficiary of the recent events has been the US dollar despite America, the world’s largest economy, itself looking for options to bridge an almost unmanageable funding deficit.

In the UAE, prices of 24ct gold are down more than Dh15 per gm from the peak to Dh212.75 per gm, and 22ct gold is once again retailing at about Dh200/gm level, according to prices supplied by the Dubai Gold & Jewellery Group this morning.

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