Spot gold prices dropped more than 20% off their latest cyclical peak last Friday, closing at $786.50/oz in London and $786 in New York. This has prompted precious metals analyst John Nadler at the Kitco bullion dealer’s Canadian branch in Montreal to forecast what he calls a "startling reversal" for the precious metal bullion's price to somewhere between $680 and $730. His outlook would put the 2008 annual average gold price around $800/oz, as opposed to the earlier consensus projection of $924. Manufacturers use gold in electronics and medical applications as well as in jewelry.
Also taking a long-term view, analysts at Natixis Commodity Markets, a leading precious-metals research firm, earlier had forecast that gold prices could drop another 10% in 2009. They say there is “waning support on the demand side of the gold market.” Jewelry, the largest component of physical demand, “has been vulnerable to high and volatile gold prices,” says Natixis, “and it has been adversely affected by the global credit crunch and the uncertainty this has created in consumer markets.”
Meanwhile, the short-term erratic nature of gold continues today with London trade closing at $797.50--and is trading this morning in New York at $794.50. “Certainly gold was suffering at the hands of the stronger dollar last week,” says analyst William Adams at Basemetals.com. He writes to clients this morning from London: “Gold today has bounced around $800 on the back of a tropical storm warning in Gulf of Mexico.” The Associated Press reports this morning that Fay, the sixth named storm of the 2008 Atlantic season, is expected to approach hurricane strength after crossing Cuba and approaching Florida’s Keys. Fay has already killed at least five people after battering Haiti and the Dominican Republic with weekend torrential rains and floods.
Recent lower gold prices also stem from the drop in crude oil prices from around $145/barrel to around $113 in the international market and appreciation of dollar against other currencies. Investors like to use raw materials as a hedge against U.S. currency, so commodity prices tend to move in the opposite direction of the dollar.
August is typically a weak month for gold prices, according to an analysis posted on Mineweb.com; indeed, the price has fallen during August in virtually all of the past five years "and in most of those years it has made a strong recovery throughout the autumn, or fall.” The question is will this year be any different?
Gold bullion sold for a record $1,011/oz on March 17 but has been sliding since. Standard Bank analyst Manqoba Madinane in South Africa says in a note to clients that the recent recovery in the value of the U.S. dollar has triggered a switch in investment capital to the currency and way from gold and other precious metals. “The bearish tone intensified throughout New York trading as the greenback (has) rallied,” he writes.
Nadler agrees and tells the Globe and Mail newspaper in Toronto that speculative institutional funds that had flooded into gold “have decided to take the money and run.” That's because developments such as the U.S. credit crunch have failed to do as much financial damage as the investors were counting on–thereby keeping gold's price moving up–due to intervention on various fronts by the U.S. Federal Reserve Board and other central banks.
