The price of gold on Monday fell below $1,400 an ounce, its lowest point since March 2011:
This is an official two-year low for gold.
“Gold has fallen sharply over recent trading sessions from over $1,600 10 days ago and there is talk in the markets that a number of institutions are cashing in following a reduction in gold price predictions from leading investment banks, including Goldman Sachs. Earlier, it fell to $1,398.80, its first foray below $1,400 since March, 2011,” the Associated Press notes.
So what’s the deal?
“Interesting that Gold crash came 4 days before hearings on Texas depository. It’s like Bernanke sent Perry a fish wrapped in a newspaper,” economist Jim Rickards tweeted.
“The action is gold/silver is another example of gov’t confiscation. MFGlobal, Cyprus, Gold/Silver. This is what a currency war looks like,” TV host Max Keiser also said in a tweet.
Is gold’s nearly 12-year bull run as a precious commodity coming to an end?
“Many reasons have been put forward to explain the sudden change of course, including speculation that Cyprus may sell a chunk of its reserves to finance its part of its financial rescue,” the AP explains.
“Though that may not materialize, it was enough to prompt some investors to think that a gold-selling strategy may be used elsewhere in the troubled eurozone.”
Many analysts, most especially the “gold bugs,” believe the Federal Reserve is directly responsible for the recent ascent (and now the descent) of gold:
Another reason put forward is that the Federal Reserve will outline a strategy to withdraw its monetary stimulus later this year despite recent mixed signals out of the U.S. economy, the world’s largest.
One of the reasons why the price of gold has been so well-bid in recent years is a direct result of the Fed’s policy — the new dollars created under so-called quantitative easing have found themselves recycled in financial markets and many of them have gone to the perceived haven of gold.
Gold prices tumbling would seem to contradict earlier calls from bearish analysts [via Financial Times]:
The collapse in prices has been foreshadowed by a string of bearish calls by analysts. In February Credit Suisse predicted the market had already peaked; Société Générale said the “end of the gold era” was nigh; and last week Goldman Sachs recommended investors short the metal.
However, to some, a drop in price isn’t a bad thing (or a conspiracy). Au contraire! According to Business Insider’s Joe Weisenthal, he of “Hey, the March jobs report was ‘GREAT’” fame, everyone should be “thrilled” about the decline in gold.
“Investing in gold is a rejection of government money and finance. Money flowing into gold-related assets represents a belief that rocks (however shiny they are) are a better place to invest than human endeavors (like stocks),” he notes, adding that the events following 9/11 “shook our faith in humanity” and drove people into the arms of gold.
“Since [stocks vs. gold bottomed in 2011], the fever has begun to break,” he writes. “Washington is fractious, but not like it was in 2011. Housing, which was central to America’s national malaise, has begun to turn around for real.”
“So ultimately, the decline of gold and the rise of stocks is a big trend that everyone should cheer.”
And whether you find yourself agreeing with Weisenthal or Rickards, just know this: Gold isn’t finished just yet.
“[M]any investors remain committed to gold – most notably John Paulson, who made billions betting against the US housing market ahead of the financial crisis,” FT notes.
“They argue that the expansionary policies of central banks in the US, Japan and the UK will ultimately herald an era of much higher inflation that should lift gold prices significantly,” the report adds.
UPDATE: Gold continues its downward ascent and experts are at a loss for words.
“It’s a slaughter,” said Carsten Fritsch, senior commodity analyst at Commerzbank AG. “It all comes via the futures market. On Friday, more than 1,100 tons of paper gold had been traded. That is more than annual gold demand from China or India. I can’t see a fundamental reason for this, to be honest.”
“There are a lot of people throwing up their hands. Throwing positions overboard. Panic is everywhere. I’ve never seen anything like this. I mean it,” said Gartman Letter founder Dennis Gartman.
Analysts are still in disagreement over what’s pushing gold down (they’re debating whether it’s Fed policy, the Crisis in Cyprus, or recent economic data out of China).
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Featured image AP photo. This post has been updated.