Gold Prices continued to plunge early Wednesday, dropping 3.8% from Tuesday's high to bounce off $880 per ounce and recover $886 by lunchtime in London.
"The latest data shows that net Comex gold [futures] positions and holdings in the physically-backed ETFs have reached to record levels," says Suki Cooper at Barclays Capital.
"Given the speculative length, there is potential for short-term Gold Price corrections.
"However, we would view these in the context of what remains a strong medium-term uptrend, buoyed by positive external drivers as well as constrained mine supply."
Gold futures traded at the Tocom exchange in Tokyo led the fall today, sinking 3.7% to equal $893 per ounce as the Japanese Yen rose to a 30-month high vs. the Dollar.
The US Dollar also fell to an all-time record low vs. the "safe haven" Swiss Franc, proving the outbreak of risk aversion amongst global investors now unwinding the "carry trade" positions they built up by borrowing low-yielding currencies to buy better-paying assets with leverage.
Japan's Nikkei stock index today sank to a two-year low, while Hong Kong shares closed out their worst day since Sept. 2001, losing 5.4% for the session. Here in London the FTSE 100 index of blue-chip stocks dropped 1.6% at the opening, falling below the 6,000 mark as Northern Rock – the over-geared mortgage bank that suffered Britain's first banking panic in more than a century last Sept. – faced state nationalization despite attempts by shareholders to block the move.
Crude oil meantime lost more than a dollar to $90.75 per barrel after the International Energy Agency trimmed its forecast for global oil demand growth from 2.4% to 2.3% in 2008.
"If you look at the broad direction in prices between gold and crude oil since 2001," said Philip Klapwijk, head of the GFMS gold consultancy, to Bloomberg earlier, "it's been pretty close.
"[But] crude oil prices are still high," he noted – and "commodities remain a good investment," believes Uwe Parpart, chief economist and strategist for Asia at Cantor Fitzgerald – and managing director of fixed-income and currency research – speaking to CNBC's Amanda Drury.
In equities, "this bull is dead," says Parpart. "The bear market started in the third quarter if not the beginning of the fourth quarter of last year.
"What we've seen is a major crisis in financial intermediation, and that's similar to a heart attack. It's similar to a situation where the blood circulation in the human body comes to a stop – and you're not going to come back from that in six months.
"People have been going into commodities and going into gold, and that's a good hedge against inflation. With global liquidity being pumped up – the Fed is almost certain to cut by 50 basis points on January 30th – I think the Gold Price will continue to go up." (Is Gold Guaranteed to Rise as Stocks Fall? Get our full Gold Report for free here...)
On a technical basis, the Gold Market has now clearly broken through the near-vertical uptrend starting in mid-Dec. After watching it burst through the three-decade top of $850 per ounce, analysts looking for short-term support can only point to the 20-day moving average at $852 per ounce.
Below that sits the 100-day moving average at $782 per ounce.
"There is little to no physical demand" from jewelry and industrial buyers says today's note from Mitsui, the international metals dealer, "and we expect this to remain until the Gold Market corrects back towards $800 per ounce, the level gold consolidated towards at the end of last year.
"The long-term outlook for precious metals is still bullish [however] on the back of the weak US economy and supply/demand fundamentals."
In Hong Kong this morning, HKEx – the Hong Kong Exchanges and Clearing company – said it wants to begin trading in gold-related futures and options, as well as exchange-traded gold trust funds, in a bid to "help strengthen Hong Kong's position as an international financial centre."
"Our market systems can support the trading of these products," said chief executive, Paul Chow. HKEx is "taking a long-term view," he added, proven by the fact that "initiatives like these tend to have lengthy timeframes."
Meantime in the Western investment markets, "there are a lot of people out there looking to get into the Gold Market at the moment, and as a result, we have seen an increase in demand for gold coins," says Alan Demby, head of South Africa's Gold Coin Exchange.
"I think that people are looking for a safe haven, so that money is going into gold," he added.
But with gold coins still one of the most expensive investments you can make outside the hedge fund industry, price-conscious buyers are moving into cheaper alternatives at a much faster pace. The gold bullion held in trust by the leading US exchange-traded fund (ETF) has grown by 45% over the last 12 months.
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