28th June 2013
The price of gold plummeted to its lowest level in three years in overnight trading as the fears over the US Federal Reserve tapering back its massive stimulus programme continued to rock markets writes Philip Scott.
On Thursday the price of the precious metal fell to $1,180 before making a gentle rebound. At the time of writing it was trading at circa $1,202. Gold, a traditional safe haven for investors has fallen out of favour this year with prices plummeting about 15% in the past two weeks alone on the back fears over the end of the US’s massive quantitative easing programme.
The Federal Reserve Chairman Ben Bernanke signalled that if the US economy continues to recover it was likely its central bank’s $85bn-a month stimulus programme would be tapered back later this year and possibly ended altogether in 2014. As the US economy has pulled itself out of the mire, the US dollar, which had been weakening for some 10-years, has continued to strengthen, taking the shine of bullion, which is a traditional hedge against the greenback.
Fifteen analysts surveyed by Bloomberg last week forecast that the price of the precious metal would fall further this week, with six bullish and five neutral, the largest proportion of bears since January 2010. Gold is now on track to notch up its first annual drop since 2000.
Gold may drop to $1,250 in a month, UBS AG wrote in a report while Ric Deverell, head of commodities research at Credit Suisse Group AG, said prices will probably fall to about $1,100 in a year. Nouriel Roubini, professor of economics and international business at New York University, has forecast a decline toward $1,000 by 2015.
The financial crisis saw the price of bullion, already in the midst of a bull market, accelerate. But it has endured severe volatility so far in 2013. In April this year, it suffered its biggest sell-off in more than three decades, taking some $1trillion off the value of reserves.
A number of theories in regards to the fall were put forward, one was that investment banking giant, Goldman Sachs, recommended clients go ‘short’ bullion, essentially bet against further rises for the time being as it cut its long-term forecast for the precious metal.