$100 moves in gold may become the new norm, analysts say
By Myra P. Saefong, MarketWatch
SAN FRANCISCO (MarketWatch) — The gold market got just what it needed this week: a two-session, $135-an-ounce drop in prices and a stark reminder that the higher the price, the higher the volatility.
“Everyone knew that gold had gotten ahead of itself and we needed to blow away the speculative froth,” said Brien Lundin, editor of Gold Newsletter, adding that traders who sold gold on Wednesday weren’t buying gold for the long term.
“We needed to get back to the levels where investors think gold is not only a value, but a necessity,” he said, and investors will “need to get accustomed to this type of volatility, to both the upside and downside.”
Gold futures GC1Z +1.11% fell below $1,800 an ounce on Wednesday, losing a whopping $104 in one session, or 5.6%, the worst one-day percentage drop since March 2008. They traded about 4.8% lower week to date.
“As $100 becomes an ever smaller percentage of the gold price, and as market volatility in general continues to rise, I think it’s reasonable to expect more $100 days in gold,” said Peter Grant, senior metals analyst at USAGold-Centennial Precious Metals Inc.
For now, long-term investors remain unfazed after the declines, but short-term ones were certainly been shaken up a bit.
Only investors that have bought in the past week should be worried about the recent price fall, said Austin Kiddle, a director at London-based bullion brokers Sharps Pixley, referring to the move as “simply a correction” from a technical point of view.
And gold’s already flexing its muscles again.
December gold tacked on nearly $6 on Thursday to close at $1,763.20 an ounce in New York. Year to date, futures prices trade 24% higher. Read about Thursday’s gold action.
“The final story has yet to be told for gold and until the U.S. and Europe get their fiscal houses in order — something that won’t happen anytime soon — we aren’t about to see the final chapter in this gold bull market,” said Lundin.
Based on the size of Wednesday’s decline, a good number of shorts had been added to the melee, he said. And “with gold entering its seasonal high point for physical demand, with the debt crises in the U.S. and Europe headed back for the front pages at some point, we are likely to see a new rally that will force these new shorts to cover.”
Rattled nerves
The next rally in gold could come sooner rather than later as nervousness over the financial and economic situations in the U.S. and Europe grows.
“We see much of the fear premium as being out of gold now,” said Ross Norman, chief executive officer at Sharps Pixley. “Oddly, the fall in gold has not been reflected in a fall in the other ‘fear index,’ the VIX.”
