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05 December 2023

Gold hit by the ‘death cross’

By Vicky Kapur

Gold prices in the UAE dipped to Dh144.50 ($39.35) per gram (18ct gold) over the weekend as the yellow metal continues to perform poorly in global markets.

The yellow metal has seen its price appreciate in each of the 10 preceding years, at least by 5.4 per cent (in 2004) and at most by 30.9 per cent (2007).

However, the start of 2013 hasn’t been good for the gold buff, with the precious metal sinking 6.1 per cent in the first seven weeks, and a majority of analysts predicting further, much steeper declines.

“Most of focus remains with the outlook for the US economy as the continued improvement in key economic data helps bring forward the markets expectations for when quantitative easing will be reduced or come to a halt. Some members of the US FOMC expressed these concerns at the most recent meeting and it added to the nervousness in the market which accelerated at the emergence of a relatively rare technical signal called the death cross,” Saxo Bank’s Head of Commodity Strategy, Ole Hansen, writes in  his latest commodities report.

“Such a cross occurs when the 50-day moving average moves below the 200-day moving average... During the past five years, we have only seen such a cross over on three occasions. In September 2008, it resulted in a 15 percent sell-off from the date of crossing until a bottom was established. Last April, another cross over occurred, leading to an 8 percent sell-off before a low was reached the following month. In the interim, a third crossover occurred in February 2012, but it only lasted for 13 days before it was rejected,” he writes in his report.

Additionally, analysts are downgrading their short- and long-term gold price forecasts. Goldman Sachs, for instance, has slashed its long-term outlook for the yellow metal to $1,200 per ounce, about $380/oz less than the prevailing price of $1,580/oz on the global markets.

That, however, looks like an optimist’s outlook if one were to see what Japanese investment bank and brokerage Nomura thinks about gold prices in 2013.

On Friday, the Japanese broker said gold price could go as low as $1,025/oz within the next six months. Nomura cites lack of investment demand for its pessimistic outlook.

The markets seem to agree, with gold prices losing their bottom mid-week last week, with prices sinking $45 in a single day on Wednesday, and landing at $1,555/oz.

This website has been, for some time now, pointing at the imminent decline on gold prices albeit by 2014. (Read: Revealed: Your pot of gold’s ‘sell-by’ date, after which it'll be trash).

With the US Federal reserve starting to make the right noises about an end to its famous quantitative easing (QE) programme, investors and analysts see the yellow metal fall back to levels slightly above those seen before the start of the QE programme in 2008.

Growing confidence in the global economy coupled with low inflation rates means that investors will now start looking for riskier asset classes – stocks, real estate, etc. – and that will mean a pull-out from safe haven investments such as gold and other precious metals.

(Home page image courtesy Shutterstock)


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