Gold tumbled to the lowest price since July 2011, heading for a bear market, on signs that investors are favoring the dollar and equities as the global economy recovers. Silver dropped more than 5 percent.
The dollar rose as much as 0.5 percent against the euro today, and the Standard & Poor's 500 Index of shares reached a record yesterday. Cyprus may sell gold holdings to cover possible losses from emergency loans.
Holdings in the SPDR Gold Trust, the top exchange-traded fund backed by bullion, reached 1,181.4 metric tons yesterday, the lowest in almost three years. Through yesterday, prices slumped 6.6 percent in 2013 as global economies improved. Minutes of the Federal Reserve's March meeting released April 10 showed several members were in favor of pulling back on its $85 billion monthly debt-buying program this year. The metal climbed for 12 straight years through 2012 partly as central banks expanded their balance sheets
"All of the traditionally supportive reasons for buying gold don't seem to work right now," Frank Cholly, a senior commodity broker at RJO Futures in Chicago, said in a telephone interview. "The argument for gold as a safe haven or protection against inflation just isn't there. We have a risk-on market, with a lot of money pouring into equities. It doesn't look too good for gold."
Gold futures for June delivery plunged 4 percent to $1,503 an ounce at 11:11 a.m. on the Comex in New York. A close at that price would leave the metal down 21 percent from a record settlement of $1,891.90 in August 2011, meeting the common definition of a bear market.
David Fuller's view Gold has broken beneath its range lows today (weekly 10-yr semi-log, weekly 5-yr and daily), and the decline now fulfils the minimum definition of a bear market mentioned immediately above.
The 10-yr semi-long chart started to show a loss of uptrend consistency when gold could not break above $1800 last September and October and slowly fell back in a step-sequence decline. It also spent longer ranging sideways than during other corrective phases within the overall upward trend.
A key factor weighing on the price in recent months has been long liquidation by investors who have wearied of profit erosion and also become less risk averse as most stock markets rallied strongly from their November 2012 lows. Short positions have increased and the gold market has been unsettled this week by rumours that Cyprus might sell some of its bullion reserves.
Gold remains a hard currency store of wealth, not least among nations. Inevitably, it has also moved from weak hands to strong hands over centuries. The central bank of Cyprus holds only about 13.9 tonnes of bullion according to the article above, and the World Gold Council says that central banks added 534.6 tons to their reserves in 2012. However, talk of possible sales by Cyprus increase concerns that other indebted European States might sell some gold.
Gold will have to accelerate somewhat lower and then rally sufficiently to break above the highs of the most recent step within the downtrend since it last approached $1800, to provide clear evidence that a sustainable floor has been reached.
On a medium to longer-term basis, I think all the quantitative easing and competitive currency debasement that we are seeing will eventually push gold to new highs.