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15 July 2024

Biggest gold price fall in 30 years

By Vicky Kapur

Spot gold price suffered its biggest single-day fall in 30 years, crashing through one resistance level after another as investors turned to panic selling in light of a tight bear-hug by major investment banks.

Click here for the latest story: Gold price destroyed; plunges 10% in a day: Will India come to the rescue?

As feared by gold bulls, the beleaguered precious metal gold fell by a massive $150/oz in trade during Monday. Gold continued to trade even after the markets officially closed, and spot gold crashed to $1,335 per troy ounce at 7am UAE time on Tuesday, April 16.

This is over and above the $87/oz decline that the price of the yellow metal witnessed on Friday, April 12, when it closed for the week at $1,477/oz.

Gold is now down 15 per cent since the beginning of 2013, and all signs point to a further short-term hammering of the yellow metal.

An ounce of gold was last seen changing hands at $1,349/oz at 8am UAE time (4am GMT) on April 16, with fresh multi-tonne sell-orders on Comex, in tandem with technical sell triggers being activated at every $2 decline, further adding to the bloodshed on bullion bourses yesterday.

“The investment community has barely begun to liquidate their holdings [of gold-related assets]”, said Stewart Richardson, partner and chief investment officer at RMG Wealth Management in London. “We will be standing on the sidelines to see how this shakeout progresses.”

Various global factors, ranging from a suspected gold sell-off by Cyprus to a recovering US economy and a faltering Chinese growth, conspired to result in a bullion bloodbath.

The precious metal has now shed almost 30 per cent of its value since its all-time high in the third quarter of 2011, when it soared to $1,923/oz on September 6, 2011. 

The latest sell-off that began on Friday has seen gold price decline vigorously like a headless chicken, prompted by a massive 125-tonne sell-order, worth $6 billion (Dh22 billion) at current prices, by a large investment bank spooked the markets and led to this decline.

In fact, according to CME Group's analyst Ross Norman, gold got crushed by 400 tonnes or $20 billion of selling on Comex. 

The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract in what proved to be only an opening shot. The selling took gold to the technically very important level of $1,540, which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level... the line in the sand,” Norman wrote in his commentary published this morning.  

Two hours later the initial selling, rumoured to have been routed through Merrill Lynch's floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market - it had the hallmarks of a concerted 'short sale', which by driving prices sharply lower in a display of 'shock & awe' - would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called 'stopped-out' in market parlance - probably hidden the unimpeachable (?) $1540 level,” wrote Norman.

The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production - too much for the market to readily absorb, especially with sentiment weak following gold's non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data. The assault to the short side was essentially saying "you are long... and wrong"...” Norman further said in his report.

Additionally, US investment bank Goldman Sachs asked its customers to dump gold, putting a “sell” on the yellow metal last week, which sparked an early sell-off. Analysts at Goldman Sachs see gold price slumping to $1,270/oz in 2014 – a decline of 33 per cent over gold’s all-time peak.

“Given gold’s recent lacklustre price action and our economists’ expectation that the acceleration in US growth later this year to above-trend pace will support US real rates, we are lowering our US dollar-denominated gold price forecast once again,” Goldman Sachs wrote in a note to customers on April 10.

“Our new forecast is further below the forward curve with year-end targets of $1,450 an ounce in 2013 and $1,270 an ounce in 2014.”

Moreover, Europe’s troubled economies are leading to a battering of the gold price. Cyprus seems set to offload €400 million (Dh1.93 billion) of its gold reserved in a last-ditch attempt to save face – and its economy. And if Cyprus does so, there is no reason why other Euro Zone economies in the same dire straits – Italy, Portugal, Spain, Hungary, Slovenia… there are plenty in line – won’t do it.

In addition, if they really ‘have’ to sell their family silver, it will make sense for other beleaguered European economies to sell it now rather than after the Cyprus sell-off has pushed gold further down. That is going to see a scramble among European nations as to who sells earlier, and that can’t be good news for the price of gold. In fact, it will be very bad for it.

“It [The Cyprus sell-off] is a make-or-break moment for gold… if the market can’t handle the reallocation and Cyprus, then there is really a need for a bear market,” Milko Markov, an investment analyst at SK Hart Management, has been quoted as saying.

Then of course, last week’s 4 million ounce (124.4 tonnes) sell-order added its weight on gold prices and dampened it by about 6 per cent.

“It appears that the significant selling pressure last Friday was amplified by a four million ounces (124.4 tons of gold) selling order, to be executed on Comex opening. This was clearly too much for a relatively empty market to handle, and the initial pressure resulted into waves of selling, which in turn attracted further selling all the way down,” Gerhard Schubert, Head of Precious Metals at Dubai-based Emirates NBD, wrote in his weekly report.

Analysts now seem to be racing against each other in downgrading the ‘safe haven’ metal, with UBS global commodities analyst Tom Price reckoning gold prices could fall to $1,100 an ounce by 2018.


Gold price destroyed; plunges 10% in a day: Will India come to the rescue?

Bullion bloodbath: Gold price sinks