ZM:Gold prices tanked, down more than $150 in two days
NEW YORK (TheStreet) — Gold prices tanked Wednesday, down more than $150 in two days, as durable goods orders jumped in July and gold investors rushed for the exits. This is a complete reversal from last week, and its price fallen since topping $1,900 an ounce during trading overnight in Asia on Tuesday.
Analysts put the falls down to profit taking and hope of new measures in the US to try to bolster its recovery.
The price of gold rose steadily this month during a tumultuous period on the markets caused by fears about the global recovery and euro debt crisis. Gold was extremely overbought, rallying more than $300 in a little more than a month and most experts were calling for a correction after it hit the 1900s level – and indeed this came fast and furious.
Some however, warn not to make too much out of the two-day slide. “Gold has been on such an amazing tear, it’s only normal to have a slight correction,” says Tom Winmill, fund manager at Midas Funds. Even after the big drop in 2 days, gold is up more than 23% this year as investors seek shelter from concerns about European debt and deficits in the U.S.
“If you look at the long-term price, there have been similar corrections and it has continued going up,” Matthew Turner, precious metals strategist at Mitsubishi, said. He acknowledged that last week’s rally, when gold rose 6 per cent, was “excessive”.
The gold market experienced a surge in demand last week, which lifted the assets of the world’s largest bullion-backed exchange-traded fund, the SPDR Gold Shares ETF, to a record of nearly $77bn. The surge catapulted SPDR Gold Shares to the world’s biggest ETF, above a peer that replicates the S&P 500.
However, flows on Tuesday into the S&P 500 fund and out of the gold fund restored the stock fund’s top ranking. The gold ETF lost $1.5bn on assets, while the S&P 500 fund gained $489m. The S&P 500 ETF is now again the biggest, with $79.6bn in assets, versus the gold fund’s $75.9bn.
Other analysts expect the pullback to continue.
“We think gold got very, very overbought and we don’t think the correction is over,” said Leo Larkin, equity metals analyst at Standard & Poor’s Equity Research. “Long-term, we’re still bullish, but short-term, it has gotten frothy,” he added.
“Over the past few months, we’ve actually been reducing some positions as we’ve seen prices go up and up,” said Clinton Struthers, owner of Struthers Financial Services, a $100 million advisory firm.
“I seriously question how much more upside there can be at this point and I do worry about a bubble in that sector.”
Adam Klopfenstein, a senior market strategist at MF Global Holdings Ltd., agrees. “This is liquidation from a crowded trade. In the short run, there’s more optimism, and that doesn’t bode well for gold. Investors have been using gold more as a fear barometer than a proxy for inflation.”
