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Gold’s Dignified Decline Becomes Unseemly Rush For The Exits

Other Commodities – and Bitcoin – Join In The Rush To Downsize

by Xavier Basil


All eyes this morning were on, website of the London Bullion Market Association. At around 10.30 UTC (11.30 British summer time), the morning Gold Fix was duly uploaded, coming in at $1,378 per troy ounce, so a fall of $17 on yesterday afternoon’s fix. Which, at $1,395, was just 90.87 percent of Friday’s $1,535 – making it the biggest one-day fall in the gold price in the last 30 years, a decline of over 22 percent on the 2012 high of $1,791.75, touched on the afternoon of last October 4, and of 26.4 percent on the all-time high of $1,895 reached on the afternoons of 5 and 6 September 2011. The much-predicted bear run in gold appears to be well under way.

India’s Pending Parents-in-Law Cheering On the Slump

It may be just week 16 in London and the gold markets of the western world, but over in Kolkata (the city formerly known as Calcutta), in India, yesterday was Poila Baisakh, the Bengali Hindu New Year. The slump in the price of gold couldn’t have come at a more auspicious moment, with the day also marking the start of a new accounting year in West Bengal and a month of marriages - and the attendant gifting to newly-weds of finely-wrought gold jewellery. Across the sprawling metropolis, the effects of the price fall were almost instantaneous. By the evening, according to this morning’s report in, Kolkata jewellers were reporting a 15 percent rise in sales of gold ornaments compared with the holiday in 2012, as the local price for the actively-traded June delivery contract crashed through the 27,000 rupees barrier to eventually close at Rs25,270 per 10 grams of 24-carat gold (the commonly-used measure in India), its lowest level since December 2011.

Not unnaturally, a question being posed in today’s media is why now? And is it just a correction or the beginnings of a slippery slope for the darling of alternative investments?

Why The Sudden Slide?

The Financial Times this morning quoted Tom Kendall, precious metals strategist at Credit Suisse in London, as suggesting that “[l]ooking for one single catalyst is probably not the right approach”. Rather, it was necessary to factor in a range of contributors to the build-up in ‘negative sentiment’, a phenomenon which has been impacting the gold price pretty much since the Festive Season of 2011. On the afternoon of 29 December that year, the London Bullion Exchange fixed the price at $1,531 – a nearly five percent fall on its last fix before Christmas Day. And although there was recovery, with prices back up into the $1,600s and $1,700s throughout last year, that high of the prior September was never again threatened and the once widely-touted prospect of gold going through $2,000 gradually ceased to emanate from the more feverish elements of the global gold lobby.

So until these past few days it’s been a dignified retreat, of insufficient magnitude to unsettle the myriad believers in gold as the best alternative to financial securities with their risible returns and exposure to capricious governmental policies.

Amongst the leading suspects for turning that orderly downwards correction into a disorderly rush for the door:

  • A rumour started to meme late last week that an increasingly desperate Cyprus was bringing some €400 million of its gold reserves to market, in all probability triggering the worry that other beleaguered ‘South Europe’ countries were set to follow suit. (As yet they haven’t.)

  • A sell order was filed on Friday afternoon, reputedly for 4 million ounces (124.4 tonnes), by a large but unidentified investment bank – far more than a skittish market was ready or willing to consume.

  • Minutes of the latest US Federal Open Market Committee meeting leaked mid-week onto the Internet which appeared to evidence declining governmental support for continued quantitative easing – the measure which in recent times has been the ‘go to’ argument for gold’s primacy as an investment safe haven.

  • North Korea upped the bombast and moved some missiles eastwards, closer to the United States. Probably enough said – the Hermit Kingdom is being blamed for pretty much everything else that’s tense in the world right now, so why not the price of gold.

And Not Just Gold – Other Commodities and Bitcoin

It hasn’t just been gold of course. Silver, fixed in yesterday’s AM session (there’s no afternoon fix) at 2,347 cents, was down 14 percent on Friday’s price and a shadow – a shade under 54 percent – of the 4,349 cents high reached on 22 August 2011. Other commodities also fell and the S&P 500 shed 2.3 percent to be at its lowest level since last November.

And then there’s bitcoin, lately the investment product most likely to flummox anyone – other than a PhD in probability theory – trying to describe it. Only recently wrenched from obscurity in the outer reaches of cyberspace into the full glare of mainstream financial media, bitcoin has been on a roller-coaster since starting its remarkable climb in value over the past month. Already relatively buoyant – compared to its price through most of 2012 – at around $40-45, bitcoin attracted worldwide interest when it suddenly spiked through $100 on 1 April, only to soar beyond that milestone to reach a to-date high of $266 a week ago, on 10 April. And then, just as rapidly, the plunge back through $100 at the end of last week, to be holding at around the $90 mark going into the weekend.

But last night bitcoin fell again, and seemingly in sympathy with gold, dropping to $50 overnight before recovering to a shade under $60 as these words are written, and apparently stable, if the term can be used in the bitcoin context. It’s a similar recovery to that of gold today, back up around 0.8 percent in afternoon trading local time on India’s MCX (Multi-Commodity Exchange).

The PM gold fix in London has yet to be announced but jitters abound across all markets heading into mid-week, with the sheer size of yesterday’s gold slump catching all observers by surprise. It’d be a brave pundit who would care to predict how things will look come the weekend, let alone month’s end.

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