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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?
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.
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
Gold will be settle at $1000'in next 6 months.there is more gold in the world than its usefulness.
Your opinion is adjusted to the facts. There is a lot of ignorant giving wrong opinions.
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) ?
Kim Jong Un is the main driving force here, a Korean Crises could trigger gold plunge below 1000USDs,and it is not faraway
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… Read more »
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!
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!
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.
About time it comes down,I want to fill up my save!
good article