Gold News

"Forced Liquidation" Drives Gold to New 13-Month Low; "If It Goes Lower, I'm Buying" Says Faber

Gold Bullion prices slumped yet again early Thursday as world stock markets sank and the Dollar continued to rise – alongside the Japanese Yen – on the forex market.

Gold's fresh $25 plunge took this week's loss for US investors above 10% at $705.40 an ounce – Spot Gold's lowest price since mid-Sept. last year.

"People are liquidating gold and other commodities as their losses in stock markets deepen," said one Tokyo research analyst to Bloomberg this morning.

Hedge funds worldwide – a key source of leveraged speculation in Gold Futures between 2003 and '07 – "lost 4.6% of their value in September," reports the London Times, "the biggest monthly fall since data began in 2000."

Today the Kospi index of South Korean equities lost 7% in frantic trade, while the FTSE100 index of UK shares dropped through 4,000 for the third time this month – a level last seen in mid-2003.

Lead, copper and nickel prices fell by 7% at the London Metal Exchange (LME) this morning. Crude oil added a dollar to $68 per barrel.

"The global credit crunch has been the Dollar's salvation," notes Steven Barrow at Standard Bank in a note to clients.

"When blind panic grips a market – as it has done since Lehman Brothers collapsed – all anyone worries about is ditching positions and returning to the safety of cash.

"The fact that most of these positions seem to have been short of dollars – along with many short-Yen positions – has caused this huge Dollar surge."

The US currency today pushed the Euro back to Wednesday's two-year lows at $1.2750. The Yen hasn't been this strong against the Euro since the end of 2002.

The Japanese currency has now regained half of the 45% drop it suffered between Sept. 2000 and July '08 in the last 12 weeks alone.

Today the Gold Price in Japanese Yen – which fell through ¥3,000 per gram at the start of Oct. – took this week's losses above 15%, finally bouncing off a new two-year low.

On the economic front, Japan's balance of trade in goods sank 71% last month compared with Sept. '07. Consumer electronics giant Sony today slashed its earnings forecast for the year-to-March '09 by more than one-half.

New industrial orders in the 15-nation Eurozone sank almost 7% in August from the same month last year, the official data agency said this morning.

Europe's net trade balance sank to minus €8.4 billion ($10.8bn).

The Swedish Riksbank today slashed its key interest rate by 0.5% – the second such cut this month – after slashing its 2009 growth forecast to just 0.1%.

"Gold has fallen below the psychological $750 support and below the technical support at $730," notes Mitsui in London. "Physical demand remains strong, and you can expect this to continue in the short term.

"[But] the market feels heavy...and one has to wonder if there is long-term value in sub-$700 gold?"

Speaking to Bloomberg last night, "I think physical gold will go down some more, but as an insurance policy I'd be very happy if it went down first, allowing us to buy more," said Marc Faber – former head of Drexel Burnham Lambert in Hong Kong and now, besides running private-client portfolios from his base in Thailand, editor of the widely respected Gloom, Boom & Doom Report.

Compared with industrial commodities, "Gold has held up relatively well," says Faber – "and it has held up relatively well compared with equities."

Looking ahead, "I think that the governments in this world have no other option than to print money, and that will lead down the road to inflation."

Gold Prices fell sharply against all major currencies on Thursday, however, dropping to £434.75 an ounce for British investors and sliding to €550.80 for French, German and Italian buyers.

Trading down at those five-week lows, gold has dropped more than a fifth of its value for European investors since hitting new all-time highs on Oct. 10th.

Meantime in India – destination for one ounce in every five of global gold mining supply in 2007 – "demand is strong but not as strong as it should be at this time," said Haresh Acharya, a bullion dealer at Parker Agrochem Exports in Ahmedabad, to Reuters earlier.

Next Tuesday will mark the key gold-buying festival of Diwali. "But this Diwali is as good as dead for gold demand," says Daman Prakash Rathod, director of MNC Bullion in Chennai, in an email to BullionVault.

"August 2008 was very good indeed...but this Diwali consumers are spending more on clothing and other utilities."

"People are not willing to fall victim to high Gold Prices and are instead going for glittering imitations," agrees Roli Malhotra, marketing chief at the Sia Lifestyles fashion chain based in Mumbai, speaking to the Business Standard today.

"Sales of imitation bridal [jewelry] sets are on the rise," he says, even as Indian Gold Prices fall below the previously key resistance level of 12,000 Rupees per 10 grams.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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