Gold sinks to 5-month low of $1,219

Will next stop be at $1,199?

Spot gold prices plummeted to $1,220 per troy in Asia trade this morning, declining to a five-month low and looking all set to plunge further on taper worries.

As the year 2013 comes to an end – with exactly for weeks to go – it is set to mark the end of the yellow metal’s bull-run, with gold price set to end the year about 30 per cent lower than where they started the year.

This will be the first time in 13 years that gold will register a year-on-year decline in a calendar year, with gold prices rising every year from 2001 until 2012.

The US-led global economic collapse of 2008/09 forced investors into the safety of precious metals, with gold gaining 23.4 per cent and 27.1 per cent in 2009 and 2010, respectively. It surged another 10.1 per cent in 2011, and made its all-time high of $1,920 per ounce the next year, in September 2012.

However, 2012 saw the metal rise just 7 per cent as the world economy slowly but surely began getting back in its feet and investors began taking stock of other, riskier investments that could offer better potential returns.

Fuelling gold’s unprecedented rise was the billions of dollars of freshly minted money that the US Federal Reserve has been throwing at the markets through its quantitative easing programmes. The third tranche of the QE programme is currently underway, which sees the US government spend about $85 billion per month in bond-buying and other market propping activities.

The Fed was expected to announce the winding down of its third round of quantitative easing programme in September, but developed cold feet and refrained from doing so. Now, however, based on the relatively good performance of the US economy, analysts believe that the announcement to end QE3 could coincide with the end of this year.

That is something that is heavily weighing the prices of precious metals, and this theme may continue in the coming weeks, experts believe.

Trading this week “will be overshadowed by my most favourite subject. TAPERING,” said Gerhard Schubert, Head of Commodities, Emirates NBD Private Banking, in his weekly dispatch on precious metals.

“The release of the NFP figures [non-farm payroll, or jobs numbers] next Friday will dominate all action during the rest of next week. This, coupled with a traditional winding down of activities after the Thanksgiving holiday, might make for a volatile market in either direction,” he’d noted in his report published this Saturday.

Schubert did mention that it was likely that “some money will be taken off the table,” resulting in a short-term price drop.

“The second guessing of what the Fed might decide will be the main topic during the week, but certainly next weekend after the release of the November data. The recent wave of good employment figures (October job creation above the 200,000 mark) has given reason to assume that tapering might begin at the next FOMC meeting (December 17 and 18), should the data next week show a further improvement of the recent trend,” he noted.

With that weighing on the minds of global investors, expect gold to breach the $1,199-mark this month.

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