Gold falls below $1,200: Bullion bloodbath ahead?

Spot gold prices fell below $1,200/oz in late evening trade yesterday, breaching that psychologically critical level for the first time in three years.

An ounce of the yellow metal changed hands (electronically speaking) for $1,199.29 at 11.30pm UAE time (7.30 GMT) as positive data from the US housing market had investors worried that the US Federal Reserve is getting the fodder that to needs to taper off its infamous stimulus programme later in the year.

With institutional investors continuing to dump gold, physical demand has been picking up but hasn’t, clearly, been able to cope up with the paper sell-off, resulting in massive declines in the price of the bullion.

Local gold retailers in Dubai have recorded brisk sales over the past few days as the precious metal plunges to three-year lows, but the fact that India (the world’s largest gold consuming nation) has increased import duty in gold and is doing all it can to discourage its citizens from buying up gold, it is clearly a tug-of-war that, for now, is running in the favour of gold bears.

Bullion bulls have repeatedly been slaughtered in 2013 that has seen gold prices slip a massive $435 per ounce, or 26 per cent, in the first half of the year.

With the psychologically critical level of $1,200/oz now breached, economists and market experts fear further bloodbath on bullion bourses as may sell triggers will now have been activated at that level, and this could result in a serious downward spiral, affecting a large number of market players.

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