Tuesday 16th April

Gold plummets to a two-year low. Will the sell-off continue?

While we normally report after close on Friday, we held off this week to see what happened when markets opened on Monday. The result was that overnight in the USA, Gold plunged more than 9% or more than US$200 per ounce since last Thursday, the most over two sessions in dollar terms since gold futures began trading in the USA in 1974.

This morning (Tuesday) Gold is trading at around US$1,360 and A$1,319.

Why the sell-off?

First, on Wednesday Goldman Sachs Group said in a note to the market 'The turn in the Gold cycle is quickening and investors should sell the metal'.

Then, reports out of Cyprus were that the bailout is bigger than expected and additional funds would be found by selling off their Gold reserves. The market then questioned, if that's what Cyprus have to do, will the same apply to the other debt-ridden European countries?

Add to this the technical impact and triggering of stop-losses for the Traders and the impact was significant.

Where to next?

A Sydney Morning Herald headline 'Panic selling: gold rout gathers steam' is fairly typical of many headlines from the financial press.

Before forming an opinion, here are some excerpts from commentators that are worth considering:

"The recent decline in gold prices has not changed our long-term thesis," said John Reade, a partner and gold strategist with Paulson & Co., who noted that the fund began scooping up gold when it was trading at around $900 in April 2009. "Federal governments have been printing money at an unprecedented rate. It is this expectation of paper currency debasement which makes gold an attractive long-term investment for us." (Source: Wall Street Journal 12/04/13)

Amid all the negative chatter recently surrounding gold — and the big price decline — one firm is sticking to its bullish thesis on the precious metal. “Still plenty of upside for gold,” Julian Jessop, head of commodities research at Capital Economics, reiterated a scenario in which gold could hit $2,000 an ounce. Worries about the Fed curbing its bond-buying efforts earlier than expected as well as Cyprus being the first euro-zone country forced to sell its gold reserves are both overblown, he says. (Source: Wall Street Journal 11/04/13)

‘‘I love the fact that gold is finally breaking down because that will offer an excellent buying opportunity,’’ Marc Faber, publisher of the Gloom, Boom & Doom report, said on Bloomberg Television’s ‘‘Street Smart’’ on April 12. ‘‘The bull market in gold is not completed.’’

Central-bank stimulus programs will help buoy gold prices, said Jeffrey Sica, who helps oversee more than $1 billion in assets as the president at Sica Wealth Management.  “I see gold being much more stable,” Sica said. “The Fed will not stop printing money, and the quantitative easing will go on until at least the end of the year. What Japan is doing and what the U.S. is doing will continue to support gold prices in the future.” The Fed, BOJ and European Central Bank have more than doubled the combined size of their balance sheets since the global financial crisis erupted in 2007.

The Peter Schiff Report:

Check out the following link to Peter Schiff, a noted commentator, and his views on why the Gold Bull Market is not over.

Source: http://ausbullion.blogspot.com/2013/04/peter-schiff-gold-bull-market-is-dead.html

Some possible conclusions:

We have seen some panic selling over the last few days and we may see further downside while the market settles and until the buyers decide to move in.

Our view is that the landscape for the medium to longer term has not changed.

1. The US Fed continues to print money, buying US$85 Billion in mortgage and treasury bonds per month. This is unlikely to stop in the short term.
2. Countries in the Eurozone including Greece, Portugal, Spain, Italy and France continue to have a significant debt crisis.
3. Any Gold that is sold by countries such as Cyprus are unlikely to be sold in the open market. It is more likely that growth nations such as China that still only has 2% of its foreign currency reserves in Gold will pick up any surplus.
4. Gold will continue to hold 'safe-haven status'.

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