Gold Price Drop: Shades of 2013
Thursday, 9/15/2022 17:53
Real rates up? ETFs selling? Multi-year support broken...?
SHADES of the 2013 gold crash In Thursday's price drop,
writes Adrian Ash at BullionVault.
A rise in real interest rates, plus continued outflows from ETFs, has finally pushed bullion down through a multi-year support level.
Before this morning the Dollar price of gold had tested its post-Covid floor
4 times at $1680 per ounce. Back in April 2013 gold had tested its post-financial crisis floor of $1535 four times before cracking lower.
Nine years ago, that spurred a 15% two-day plunge in spot prices, worth some $1 trillion, with
gold losing 25% inside 3 months and setting its worst annual loss since 1981.
So far, so gulp!
But gold's outlook now rests on four key differences between spring 2013 and fall 2022.
First, this technical break has only come in terms of the soaring Dollar. Gold is holding above its summer lows in Euros, UK Pounds and
most other currencies, and it's near record highs in Japanese Yen.
That's likely to slow if not stem the drop for US investors, short of the Dollar breaking even further and dramatically higher from its current 2-decade highs on the FX market.
Second, gold's drop to two-year Dollar lows isn't yet carrying through to other precious metals. Silver prices in particular are refusing to confirm the move so far, still up for the week and almost 10% above the gray metal's own
2-year low of start-September.
Third, gold's approach of and drop through its $1680 floor coincides with heavy selling across other asset classes, from bonds to stocks, crypto to commodities. That should add safe-haven demand to the bargain-hunting we're already seeing on BullionVault in response to Thursday's price drop.
Fourth, and most different to 2013, those rising rate expectations which have pushed gold down beneath its post-Covid floor clearly threaten to
worsen the economic slowdown already underway, raising a political challenge to Fed tightening that's already shown in the inverted yield curve between 10-year and 2-year rates.
Gold may very well struggle to rally for as long as the Fed says that fighting inflation remains its No.1 concern. The flip, when it comes, could see a swift and sharp bounce-back.
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