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Gold Extends Bear-Market Plunge Below $1,400

April 15, 2013
 
 

April 15 (Bloomberg) -- Gold slumped below $1,400 an ounce to a two-year low after dropping into a bear market last week as optimism that a U.S. recovery will curb the need for stimulus cut demand for a protection of wealth. Silver, platinum and palladium declined.

Bullion futures slid 4.1 percent on April 12, taking losses to more than 20 percent since the record close in August 2011, and meeting the common definition of a bear market. They fell as much as 7.8 percent today to the lowest since March 15, 2011. Holdings in the SPDR Gold Trust, the biggest gold-backed exchange-traded product, are the lowest in almost three years and hedge funds have cut bets on higher prices by 72 percent since October.

The metal climbed for a 12th year in 2012 as nations pledged more stimulus to bolster growth. Prices are down 16 percent this year as some Federal Reserve policy makers favor pulling back this year on $85 billion in monthly debt-buying and as U.S. equities reached a record. The turn in the gold cycle is quickening and investors should sell, Goldman Sachs Group Inc. said April 10. Prices also fell last week on speculation Cyprus may sell gold. Commodities declined to the lowest since July as data showed China’s economy grew less than estimated.

"This is a market that has been bullish for nigh on 10 years, finally turning into a fully-fledged bear market," David Govett, head of precious metals at Marex Spectron Group in London, wrote in a report today. "A combination of stronger dollar, Cyprus gold selling news and talk of quantitative easing ending later in the year all weighed on the price. We need some rationale back in the market before one thinks about getting involved again."

 

Gold Price

 

Gold futures for June delivery slid 6.3 percent to $1,406.80 an ounce by 7:51 a.m. on the Comex in New York, reaching as low as $1,385 as prices fell $116.40. Last week’s 4.7 percent drop was the most since December 2011. Futures trading volume was five times the average in the past 100 days for this time of day, according to data compiled by Bloomberg. Gold for immediate delivery was down 5 percent at $1,408.29 in London.

An April 9 debt assessment by the European Commission said Cyprus had committed to selling about 400 million euros ($525 million) of "excess" gold reserves. In response to the disclosure, the Central Bank of Cyprus said it wasn’t considering a sale. It owns 13.9 metric tons, according to the World Gold Council. That’s valued at about $622 million.

"Some of the key pillars of the gold bull market look like they’re suffering fatigue," Peter Richardson, an analyst at Morgan Stanley, said by phone from Melbourne today. "The gold market’s probably started to price in the prospect that beleaguered members of the euro zone might be forced to sell gold to raise part of the funding, and there are much bigger holders in that category than Cyprus."

 

SPDR Holdings

 

SPDR Gold Trust holdings fell 22.9 tons to 1,158.56 tons on April 12, the lowest since April 28, 2010, its website shows. Global assets fell 6.9 percent in the first quarter, the most since at least 2004, data compiled by Bloomberg show. They’re about 8.6 percent below the Dec. 20 record.

Gold has ceased to be a haven for investors after it fell when the euro was close to collapse last year, billionaire investor George Soros said in an interview with the South China Morning Post published April 8. Soros cut his stake in the SPDR gold fund by 55 percent in the fourth quarter, a filing showed.

"The demise of gold is still at an early stage," Georgette Boele, a commodities strategist at ABN Amro Group NV, wrote in a note today. "Other assets will become increasingly more attractive as the growth outlook improves."

 

U.S. Recovery

 

The Fed has said further improvement in the labor market is needed to consider reducing its stimulus. While U.S. growth will probably slow to 1.6 percent this quarter from 2.9 percent in 2013’s first three months, it will then accelerate every quarter though mid-2014, economists surveyed by Bloomberg forecast. U.S. stocks advanced last week, sending the Standard & Poor’s 500 Index to an all-time high, amid optimism that corporate earnings growth will continue. The index is up 11 percent this year.

Goldman cut its three-month gold target to $1,530 from $1,615 and lowered the 12-month forecast to $1,390 from $1,550, analysts Damien Courvalin and Jeffrey Currie said in an April 10 report. While higher inflation may be the catalyst for the next cycle, that’s probably several years away, they wrote.

Gold’s plunge has pushed its 14-day relative strength index to 19.1, below the level of 30 that indicates to some analysts who study technical charts that a rebound may be imminent.

"I love the fact that gold is finally breaking down because that will offer an excellent buying opportunity," Marc Faber, publisher of the Gloom, Boom & Doom report, said on Bloomberg Television’s "Street Smart" on April 12. "The bull market in gold is not completed."

 

Silver Price

 

Silver for May delivery dropped as much as 13 percent to $22.92 an ounce in New York, the lowest since Oct. 22, 2010, and was last at $23.715. Prices entered a bear market at the beginning of this month. Industrial products from solar panels to batteries account for about 53 percent of demand, according to the Washington-based Silver Institute.

China’s gross domestic product rose 7.7 percent the first quarter from a year earlier, the National Bureau of Statistics said in Beijing today. That compares with the 8 percent median forecast in a Bloomberg News survey of 41 analysts and 7.9 percent in the fourth quarter.

Palladium for June delivery fell as much as 5.9 percent to $667.45 an ounce, the lowest since Jan. 8, and was last at $683. Platinum for July delivery was 3.6 percent lower at $1,441.80 an ounce. It fell to $1,422.50, the lowest since Aug. 16. The Standard & Poor’s GSCI Spot Index of 24 raw materials lost as much as 2.1 percent to 609.85, the lowest since July 12.

 

--With assistance from Madelene Pearson in Singapore and Adam Haigh in Sydney. Editors: Claudia Carpenter, Sharon Lindores

 

To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

 

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

 

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