A perfect storm slammed gold and silver prices Friday.
Selling from celebrity hedge fund managers, tighter U.S.
sanctions in Turkey's gold-for-gas trade with Iran, liquidations
ahead of the G-20 meeting in Moscow, and the Chinese Lunar New
Year holiday and continued strength in the dollar were all blamed
for the sharp nose-dive in precious metals.
Spot gold prices tumbled 1.7% to $1,608 an ounce -- its lowest
price since early August.
In afternoon trade on the
stock market today
SPDR Gold Shares (
) -- tracking a 10th of an ounce of bullion -- dropped 1.6% to
155.76 in heavy volume. It touched a seven-month low in morning
trade and rebounded from oversold levels.
PowerShares DB U.S.
Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, added 0.09% to 21.96.
Billionaire investors George Soros cut his stake in GLD by 55%
to 600,000 shares in the quarter ending Dec. 31,
. Louis Moore Bacon of Moore Capital Management dumped his entire
position in GLD and part of his holdings inSprott Physical Gold
Hedge funds sell out of their positions to scare other
investors out in order to buy them back at lower prices, Monty
Guild, founder of Los Angeles-based Guild Investment Management
told clients in an online presentation Friday. He recommended
clients buy the dips, noting that "violent corrections" are par
for the course in a long-term uptrend.
Since its multidecade low in 1999, gold fell 21%, 23% and 30%
from peak to trough during three major corrections in 1999, 2006
and 2008. It's currently trading only 8% below its 52-week high,
which is considered a normal pullback. However, it's trading
below both its 50- and 200-day moving averages, which indicates a
Guild believes gold will rebound because central banks around
the world are heavily buying the yellow metal to diversify their
reserves in addition to debasing their currencies and fanning
Gold is oversold and presents a low-risk buying opportunity
stock market investors
, said Don Vandenbord, a portfolio manager at Camarda Wealth
Advisory Group in Fleming Island, Fla., with $250 million in
assets under management.
"The currency war being fought by central banks seems to have
convinced investors that stocks are the place to be, and this
'risk-on' trade has led to an exodus of capital from precious
metals," he wrote in an email.
A break below $1,600 an ounce opens the door to a drop to
$1,530 to $1,540 an ounce, he believes.
Chief market strategist David Hunter at KCCI, a brokerage firm
in Jersey City, N.J., believes gold will find support at $1,500
an ounce before falling to $1,000 an ounce later this year.
"Gold is beginning to anticipate a global deflationary bust
that I believe is just over the horizon," he wrote in an
Market Vectors Gold Miners ETF (
) gapped down 4% to 39.89, a seven-month low. It's been in a
strong downtrend since September but appears to some strategists
as heavily oversold, which makes it prone to a sudden snap back
rally from bargain buying and short covering.
Other Confounding Factors
U.S. officials are trying to halt Turkey's gold exports to
Iran, which has been shut out of the global banking system by
sanctions over its nuclear program,
. The gold is used to indirectly pay for Iran's natural gas to
Turkey, a nation heavily dependent on imported energy.
What Asian traders, who've been celebrating the weeklong Lunar
New Year holiday, do when they get back could determine gold's
short-term future. Will they buy the dip to take advantage of
lower prices or sell to cut losses?
Federal Reserve Chairman Ben Bernanke said at the G-20 meeting
in Moscow Friday that the U.S. economy is far from optimal and
repeated his support for monetary easing. This could be
interpreted either way for gold investors: 1) Quantitative easing
will continue indefinitely, depressing the dollar and supporting
gold prices, or 2) The economy is weak and therefore investors
should sell their risk assets and seek shelter in the dollar,
which boosts the dollar and depresses gold.
Silver prices tumbled 1.9% to 29.91.
IShares Silver Trust (
) skidded 2.1% to 28.84.
Some market watchers believe heavy naked short-selling to
profit from falling prices is to blame for pushing prices
"Some 90 million ounces on paper were sold in silver,
obviously they don't own them to sell, but that is what is
happening," Terry Sacka, chief strategist at Cornerstone Asset
Metals in Palm Gardens, Fla., said in an email. "I believe it is
a last push to the low for a short-cover rally."
Sacka says low prices will attract buyers to the actual
physical bars, especially in Asia.
"Russia bought 600 tons last year," Sacka wrote. "This is just
the beginning. You will see a rally soon when Europe slides into
a crushing recession this summer, and more (money) printing
Silver Miners ETF (SIL) gapped down 3.3% to 19.74, a six-month
Platinum and palladium also fell.
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