The bears pounded the gold bugs to a pulp Friday. Gold prices
cratered to a 15-month low on fears Cyprus and other indebted
European countries will be forced to sell their gold reserves to
cover their bailouts.
Spot gold prices plummeted 4.79% to $1,487 an ounce -- the
lowest level since July 2011. The yellow metal has tumbled 23%
from its all-time high of $1,924 an ounce, officially signaling a
"It broke below key chart support at $1,525 an ounce, and we
could see a measured move down to $1,250 an ounce during the next
year or two," Mark Arbeter, chief technical strategist at S&P
Capital IQ, wrote in his weekly report.
SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, crashed 4.72% to
143.92 in five times normal trade.Market Vectors Gold Miners ETF
) collapsed 5.88% to 32.17 -- a four-year low -- in double
Traders blamed overreaction to news and automatic selling that
was triggered when prices broke below key support at the
September 2011 lows. Western central bank agreements limit annual
gold sales to 400 tons a year and 2,000 tons over five years.
Lower prices would likely spur buying by South Korea and
Brazil, said KC Chang, a Toronto-based senior economist at IHS.
They only have 1.7% and 1.0% of monetary reserves, respectively,
stored in the yellow metal. He believes prices will rebound in
the next month or so.
Central Banks Hesitant
Central banks would be reluctant to sell in the face of
falling prices and in such significant amounts that would drive
prices lower, says Bill Witherell, chief global economist at
Sarasota, Fla.-based Cumberland Advisors with $2.2 billion in
assets under management.
"Central banks cannot afford the gold price to move lower,"
Miguel Perez-Santalla, vice president of business development at
BullionVault, a precious metals exchange in New York, said in an
email. "It devalues their holdings and makes their currency
weaker. Gold sales, if done by central banks, will be done
amongst themselves to avoid destruction in the marketplace."
Cyprus owns 13.9 tons of gold, amounting to nearly two-thirds
of its monetary reserves, according to the World Gold Council.
That's a speck compared with the European Central Bank's holdings
of about 500 tons and the International Monetary Fund's 2,800
"The Cyprus news is not positive for gold, but the overall
size of the gold sales is pretty minor, considering China
continues to import upwards of 100 tons of gold a month through
Hong Kong," Peter Spina, president of Littleton, Colo.-based
GoldSeek.com, said in an email.
Demand remains strong overseas and Japanese investors are
thrilled to own gold rather than the yen, Spina added. The island
nation's currency has plunged 18% against the dollar in the past
PowerShares DB U.S. Dollar Index Bullish (
), tracking the greenback against a basket of major foreign
currencies, slipped 0.13% to 22.34. It tends to trade opposite
Its rally off its February lows could run out of steam soon
from a contrarian perspective, says S&P Capital IQ's Arbeter.
Trader sentiment has reached its most bullish level since
The Commitment of Traders (
) data show commercial hedgers, the so-called smart money, are
heavily short the dollar, while the speculators, or so-called
dumb money, are the most bullish they've been in at least eight
years, Arbeter wrote.
"Many times in the past, this combination of sentiment and COT
data has led to decent-sized pullbacks," he said.
Overabundance Of Silver
Silver plunged 5.64% to 26.20 an ounce -- its lowest price
since November 2010.IShares Silver Trust (
) gapped down 5.32% to 25.28 in 3-1/2 times average volume.Global
X Silver Miners ETF (SIL) nose-dived 4.68% to 16.27 in triple
Silver supplies have hit a 15-year high in Comex warehouses.
Until industrial demand returns, silver prices will be linked to
gold, ETF Securities' weekly precious metals report stated.