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
SPDR Gold Shares (
), 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
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
"Slowing global trade limits central bank demand, as there is
lesser need to hedge dollar-denominated trade exposure," Hejlik
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
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.
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.
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