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?
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