Gold Price Posts Biggest Decline in 33 Years

on Apr 16, 2013

Gold plunged the most in 33 years with signs of global economic slowdown prompting a commodity sell-off and outweighing concerns that easing policies by central banks would spur inflation. Collapsing prices hit gold producers such as Barrick Gold Corp (TSE:ABX), whose shares closed more than eleven percent lower in Toronto.

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**Gold Price Slumps**
As newswires reported, gold futures for June delivery slumped 9.3 percent to close at $1,361.10 on the Comex in New York on April 15, the biggest drop for a most-active contract since March 17, 1980, whereas gold futures for April delivery shed 9.4 percent to $1,360.60 an ounce. Since April 11, gold prices have declined by more than $203 an ounce, a record drop since the futures began trading in the US in 1974. On April 16, Reuters reported that spot gold hit a session low of $1,321.35.

Gold took a hit alongside other commodities following news of weaker-than-expected GDP growth in China in the last quarter. In addition, the Federal Reserve Bank of New York reported that manufacturing in the state barely expanded in April.
Bloomberg quoted Frank McGhee, the head dealer at Integrated Brokerage Services LLC, as commenting that “gold took a beating” because of margin calls expected on the Comex. “The Chinese number was the final nail on the head with people exiting from all commodities, including gold.”

As Bloomberg reported, the silver price also declined, with futures for May delivery plunging 11 percent to $23.361 an ounce on the Comex, their biggest drop since Sept. 23, 2011. The platinum price also posted a decline, with futures for delivery in June shedding 4.8 percent to $1,424.80 an ounce on the Nymex.
**Bear Market**
Gold slumped into a bear market on April 12, dragged down by concerns that Cyprus might start selling bullion holdings to support its bailout, with the news prompting speculation that other indebted Eurozone countries such as Spain and Italy might follow suit.

“Some of the key pillars of the gold bull market look like they’re suffering fatigue,” noted Peter Richardson, an analyst at Morgan Stanley (NYSE:MS), as quoted by Bloomberg. “The gold market’s probably started to price in the prospect that beleaguered members of the Eurozone might be forced to sell gold to raise part of the funding, and there are much bigger holders in that category than Cyprus.”

The Wall Street Journal quoted Edward Lashinski, director of strategy and trading for the futures group at RBC Capital Markets, as explaining that gold, in the way it is traded, had “transitioned from a store of value into what now appears to be a bubble based on expectations of central-bank liquidity measures”.
**Collapse Hurts Producers**
!m[Worries Over Economic Growth in the US and China Spark Sell-Off ](/uploads/story/1895/thumbs/pic1_inline.png)Monday’s gold price slump also hit gold producers, with the mining news website Mineweb reporting that the Toronto Stock Exchange sector was down nine percent. Barrick’s share price closed 11.51 percent down in Toronto at C$20.30. Mineweb quoted Royal Bank of Canada’s (TSE:RY, NYSE:RY) Global Mining Research as forecasting that North American gold producers would experience significant pain if the gold price plunged to $1,300 an ounce.
“We would expect all the gold producers in our coverage universe to cut all discretionary expenses, cut capital sending sharply, defer new capital development programs, and in some cases cut dividends,” RBC noted, as quoted by Mineweb.


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Commodity Precious Metals