Why Are Gold Prices Down?

Email

Gold and to a lesser extent silver got hammered pretty hard today (Friday) – leading many of our investors to write in and ask why gold prices are down so much this week.

Gold closed Friday at its lowest level since July 2011. In the last two days, gold was off about $79 and silver off about $1.60 at their worst points.

So what's going on?

Well, in the search for answers I can see a few reasons.

It started Tuesday, when UBS cut its average gold price forecast for 2013 to $1,740 from $1,900. UBS cited risks the U.S. Federal Reserve would end its current QE sooner than expected, a move into equities, low inflation, improving economic growth, and a stronger U.S. dollar.

Then Wednesday, the leaked Federal Open Market Committee (FOMC) meeting minutes showed that several members believe the costs of the $85 billion monthly bond purchases outweigh the benefits. We're being led to believe that "many participants" think improving unemployment could justify slowing up on bond-buying "at some point over the next several meetings."

Remember that these are not minutes where members' comments are actually written down word-for-word (like they ought to), these are carefully crafted statements to influence opinion. The Fed is known to try to "manage expectations, so it wants it to look like bond-buying will end sooner than later.

But I, for one, don't buy it.

Nonetheless, that pressures gold prices. And this spooked the market.

Then Goldman Sachs cut its 2013 average gold price forecast for a second time within just six weeks, down to $1,545 from $1,610. Goldman cited an accelerating U.S. economic growth outlook as well as recent weak gold price performance.

And then reports surfaced that Cyprus may sell 400 million euros worth of its central bank gold reserves; nearly 75% of the total.

Cyprus initially denied it was considering any such sale. But then European Central Bank (ECB) President Mario Draghi said Friday that any gold sale profits from Cyprus would need to be used to cover losses it might incur from emergency loans to its commercial banks.

So it looks like the European Monetary Union will get its way with Cyprus' gold in the end.

Although the amount of gold is smallish, the psychological effect of this proposed gold sale has helped to push gold lower. Mission accomplished.

Will Gold Continue to Drop?

Join the conversation. Click here to jump to comments…

About the Author

Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.

Read full bio

  1. Brian Troisi | April 12, 2013

    Good article. As precious metal prices plunge I can't get my cash out of the bank fast enough to by more. This is a great opportunity to buy the dip. Whatever nefarious powers that be, which are responsible for manipulating this price dip, THANK YOU!

    Brian

  2. Farhat Khawaja | April 12, 2013

    Gold will be settle at $1000'in next 6 months.there is more gold in the world than its usefulness.

  3. mariano capdevila | April 13, 2013

    Your opinion is adjusted to the facts. There is a lot of ignorant giving wrong opinions.

    • milton shilas | April 15, 2013

      Thoseforcasting the demise of gold today have obviously forgotten why it got here to begin with!

  4. Robert Higson | April 13, 2013

    Do you have any knowledge, thoughts or opinions on a stock being heavily pronoted by Greg McCoach called Tinks Resources (TK on the TSX venture) ?

  5. lancersboy | April 14, 2013

    Kim Jong Un is the main driving force here, a Korean Crises could trigger gold plunge below 1000USDs,and it is not faraway

  6. Ramesh Sujanani | April 15, 2013

    I have been asked by numerous persons, “Should we invest in gold?” This is somewhat of a different investment to stocks and bonds, shares, and other equities, Gold is still regarded as a commodity but considered favorable as an investment. Its control and pricing policies have changed significantly over the years.
    Investing directly in commodities, such as gold or oil, tends to be more difficult for investors than investing in stocks and bonds. A major reason for this is that stocks and bonds are readily transferable and easily accessible to the average investor. With gold one has to commit to a trader the amount and accept a certificate of ownership which the trader or his bank issues; or alternatively accept the (gold) bullion in whatever available form by a certain date.
    However, the recent advent of more advanced financial instruments, gold, along with other commodities, has become much easier to invest in without having to buy the physical metal. There are now exchange traded funds (ETF) that replicate the movements of the underlying commodity, giving investors direct exposure. While not every commodity has an ETF, both gold and oil have ETFs. For example, the street follows Gold Shares trades on the New York Stock Exchange and can be traded at any time throughout the trading day. Each share of the ETF represents one-tenth of an ounce of gold, so if gold is currently $1800 an ounce, the gold ETF will trade at $180 per share. This investment product is one of the easiest and least expensive ways to access the gold market.
    Investors looking to invest in gold directly have three choices: they can purchase the physical asset, they can purchase an ETF that replicates the price of gold, or they can trade futures and options in the commodities market.
    Around twenty years ago the price of gold would be set by a group of producers and traders on the London Market one to three times a day depending on supply and demand data, and the price would be the second or noon fix. These days the big banks set the price depending also on supply and demand, but to the extent gold value is in savings or other disposal, that price may be adjusted up or down.
    As long as there is a need for money, there is need for gold. Gold was, gold is, and gold forever will be! I am not certain that ‘will be’ is guaranteed, considering technologies that keep improving, but throughout History gold sufficed as money until shortly after World War II. Most of the Gold ever mined still exists in an accessible form as jewelry or ornaments, and may return back to the market.
    Gold is more affected by demand considerations rather than supply situations. Can you imagine gold reaching such a price, that everyone having a portion of whatever size runs back to a refiner for a cash sale or rebate? So this demand consideration is what is holding the price from further climbing.
    In the 80’s the Hunt Brothers of Texas decided to corner the Silver market by buying all the silver available. The price sky-rocketed to 55.00 per troy ounce, from around 10.00 per oz. Then the high price caused so much silver to be returned to the refiners by the public and producers that the refiners could not pay for a supply of silver scrap until one year after delivery to their refinery.
    The currencies of all major countries are under severe pressure caused by massive Government Deficits; the more money that is printed and given to these economies lowers the price of the currency. (Wiki.)
    If the returns on bonds, equities, and real estate does not compensate for the for falling currency value, then the demand for gold and other commodities increases, causing the prices of those commodities (including gold and other metals) to increase. Gold is the most responsive of the commodities (metal) to changes in market.
    Jewelry is more than 66% of the total market for gold. As an industrial metal, gold is used in dentistry and medicine of around 11% of its supply, because it is unaffected by other common chemicals and is resistant to corrosion, and bacteria. It is more electropositive, malleable, and ductile than all other metals; this means it is in demand for certain products, except that for financial reasons the elevated prices prohibit sales on the market. People use their disposable income to buy jewelry, but if the price of gold is too high they might buy some other item. This is one of the reasons why gold prices are in regression these days.
    My advice is to look at the declining price and buy as low as you can, so that there is profit when the commodity is rising; assuming that the world economic situation improves, and demand is justified.
    (817 words: ramsur.wordpress)

  7. RetireFund | April 15, 2013

    Besides the "Cypress Effect" there appears to be a concerted effort by some to sell their "paper" Gold ETF positions, and then buy physical gold instead. Volitility is the result and lower prices are just good entry points for those who missed the last 12 years of straight up!

  8. Karen | April 15, 2013

    I agree with Brian, good article and every time gold drops in price, I will be buying more. I consider this drop in gold prices as a "sale" on gold!

  9. Jeff Pluim | April 15, 2013

    Iran is still selling oil to China and receiving gold in exchange. That has got to create a dip in the price of gold, as Iran is using that gold as its international currency, and by doing so, dumping gold onto the market.

  10. Sniper | April 15, 2013

    About time it comes down,I want to fill up my save!

  11. rajesh | April 21, 2013

    good article

Leave a Reply

Your email address will not be published. Required fields are marked *

Some HTML is OK