hammered gold and silver prices to their lowest levels in nearly
a year Wednesday even as the dollar weakened and a South African
mining company was forced to halt operations owing to a labor
Traders fled in droves this week after Societe Generale
released a report contending the gold "bubble" is bursting in the
face of rising interest rates, an improving U.S. economy, a
strengthening dollar and "seriously oversupplied" physical gold
Spot gold prices dropped 1.2% Wednesday to $1,558 an ounce, a
SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, melted 1.21% to 150.73
a share on the
stock market today
PowerShares DB U.S. Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, shed 0.31% to 22.50.
Gold will dive to $1,375 an ounce by year's end, down 12% from
Wednesday's price, while trading at an average price of $1,500 an
ounce during 2013, Soc Gen's analysts forecast. Gold prices
climbed the past five years on fears that the Federal Reserve's
quantitative easing programs, or QE, would lead to monstrous
inflation. But inflation has been declining since 2011.
"Now we are beginning to see: 1) the economic conditions that
would justify an end to the Fed's QE; 2) fiscal stabilization
that has passed its inflection point; and 3) a U.S. dollar that
has begun trending higher," Soc Gen analysts wrote in the report
titled "The End of the Gold Era." "It seems unlikely that
investors would want to add much to their long gold positions in
this context. If so, the gold price would trend lower at pace as
the physical gold market is seriously oversupplied without
continued large-scale investor buying. Selling by investors would
add fuel to the fire."
have unloaded 140 tons so far this year and February saw the
largest monthly outflow on record. That's in contrast to November
and December of 2011, when gold prices fell 13%, while ETF
Germany, Libya and Venezuela all reduced central bank holdings
in gold this year. China will likely limit its gold holdings to
2% of its total foreign exchange reserves because if it were to
buy too much, gold prices would rise, hurting Chinese
Central banks will find gold less appealing a source of
monetary diversification as the U.S. dollar appreciates, Soc Gen
It estimates official holdings will fall from 536 tons in 2012
to 450 tons in 2013 and 300 tons in 2014.
All the while, mine output is growing. In response to rising
gold prices and high margins the past few years, gold mining
companies invested in new development and expansions to secure
future supply. Soc Gen estimates mine supply of 1,750 tons in
2013, up 5.3% from 2012 levels.
Gold has fallen in tandem with panic selling in silver on
expectations of weaker global demand for electronics, says Tom
McClellan, publisher of "The McClellan Market Report." But the
sell-off seems unjustified because of lacking evidence showing a
slowdown in manufacturing worldwide.
"This smells like the case of famous Russian fire sale of gold
more than a decade ago, which was supposedly done by Russia's
central bank in order to raise funds for relief of Siberian flood
victims," McClellan wrote in his newsletter Wednesday. "That
story sent gold down 2% in one day (back when gold was trading in
the $370s and it proved to be a colossal head fake."
He believes gold is oversold and due for a rebound.
Market Vectors Gold Miners ETF (
) plunged 4.54% to 34.25 -- its lowest price in nearly four
years. Trading volume doubled average.Market Vectors Junior Gold
) plummeted 6.38% to 14.67, a fresh all-time low.
Gold Fields (
) plunged 5.6% as workers at its Tarkwa and Damang mines in Ghana
went on strike, forcing the South African firm to stop
production, Kitco Metals reported. Gold Fields said the
Mineworkers Union has numerous disputes and there's no telling
when the strike will end.
Gold Chart Action
From a technical perspective, the chart for gold futures and
ETFs look very bearish. The shorter-term 50-day moving average
fell below the longer-term 200-day moving average in February,
forming the so-called cross of death or death cross -- a very
bearish development. Gold has fallen 13% below its 52-week high
and trades deep below its 200-day line, which is very bearish and
presents significant overhead supply in which buyers who bought
falling prices sell as prices rebound to break-even levels.
Increased volatility in trading recently suggests the
potential for a larger breakdown in gold prices, says Andrew
Barber, CEO of Waverly Advisors in Corning, N.Y.
Silver prices tumbled 1.03% to 27.08, a new nine-month
IShares Silver Trust (SLV) fell 0.99% to 26.09 in heavy
Global X Silver Miners ETF (SIL) crashed 3.71% to 16.59, an
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