Gold price slips below $1,200; sinks to $1,181: Bullion bloodbath ahead?

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

The yellow metal continued it downward slide through last night, slipping to $1,181.01 in Asia trade, its worst showing in more than theree years.

The last time gold price closed below $1,180/oz was in May 2010, and the precious metal has stayed above that level for more than theree years now. 

Gold price recovered a tad this morning, moving up to $1,212 at one stage but slipped again but was trading at $1,189.70 per troy ounce at 18:00 UAE time (14:00 GMT) on Friday, June 28, 2013.   

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 for the first time in almost three years, 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.

Looked at from an investor's perspective, the incentive to hold gold has been fast evaporating, with gold set to lose further value if the Fed fulfils it threat to begin tapering off the fiscal stimulus. In addition, gold's utility as a hedge against global uncertainty is also reduced as the world economy, especially the American economy, gets gradually back on track. In the end there is rising interest rates in various world economies, which prompts investors to get back into the fixed income game rather than stay invested in a precious metal that is fast losing its shine.


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