The market poured more salt into the gold bulls' wounds Wednesday as precious metals prices sank to new lows.
The
decline came as the dollar continued rising despite lower-than-expected
economic growth numbers. That economic news eased fears of a tapering in the
Federal Reserve's stimulus program, which has helped bolster gold in the past.
Spot gold
prices fell 4.05% to $1,227 an ounce. On the stock market SPDR Gold Shares (GLD),
tracking a 10th of an ounce of bullion, dropped, 4.20% to 118.28 — its lowest
price since August 2010.
GLD is
trading 23% below its 40-week moving average, indicating it's much more
oversold now than at its October 2008 bottom, when it traded 18% below that key
line. GLD traded only 5% below its 40-week when it troughed in October 2006.
"It's
trading on a very psychological basis rather than to actual fundamental
drivers," said Adam Grimes, chief investment officer at Waverly Advisors
in Corning, N.Y.
Longview
Tactical Allocation , a mutual fund with $25 million in assets that Grimes
co-manages, started shorting gold futures June 7 to profit from falling prices.
His ultimate price target is $850 an ounce, down 31% from Wednesday's price. He
agrees gold is very oversold but says it can keep getting more oversold.
"Watch
for news of gold producers shutting down because of market prices (falling)
below production cost to mark the bottom," said Tom McClellan, founder of
the McClellan Market Report.
It costs
miners about $1,000 to produce an ounce of gold, Fourth Quadrant Asset
Management CEO Patrick Hejlik estimates. He believes gold should trade around
that price given the ample supply amid falling demand, especially from China
and India. Those two countries account for nearly half of the global market.
"Slowing
global trade limits central bank demand, as there is lesser need to hedge
dollar-denominated trade exposure," Hejlik emailed.
India has
raised gold-import duties from 6% to 8% to control inflow. At the same time,
heavy depreciation in the rupee has raised prices. The physical buying craze in
the Middle East, Asia and India seen in late April and May has faded and
there's been significant stockpiling in China over the past two months, Credit
Suisse analysts wrote in a commodities forecast released Wednesday.
They
expect the yellow metal to sink to $1,150 an ounce in 12 months as the
fundamental reasons for owning it as a safe haven in case of financial
Armageddon and inflation have diminished. Global inflation is falling despite
five years of quantitative easing in the U.S. and 12 in Japan. When the Federal
Reserve normalizes monetary policy and allows interest rates to rise, investors
will favor assets with yields.
Precious
metals ETFs that hold gold, silver, platinum and palladium saw $1 billion, or
1.7% of assets, in outflow in the past week, according to TrimTabs Investment
Research. Investors pulled out $1.7 billion, or 2.6% of assets, in the past month and $19.3
billion, or nearly 24% of assets, year to date.
ETF gold
holdings have shrunk by 515 tons so far this year to 2,115 tons, according to
Credit Suisse.
"Annual
jewelry demand would need to grow by 20% to 25% year over year to absorb the
ETF liquidation seen during just the first five months of this year,"
Credit Suisse analysts wrote.
Read More At Investor's Business Daily: http://news.investors.com/investing-etfs/062613-661537-gold-prices-dives-stands-to-lose-more.htm?ven=taboolacp&utm_source=taboola#ixzz2Xa6u26Ab
No comments:
Post a Comment