247Bull.com Editor: Thanks to the fact that gold broke through major support at $1,525 and is now officially in a “bear market,” practically every technical analyst can be expected to be bearish. Those that look at gold from a fundamental basis will see things differently. They will focus, not on the paper market which can be manipulated, but rather on the physical market where buying remains strong. Much of the recent bearish sentiment towards the gold market has been centered around the outflows from the popular ETF GLD. Since the beginning of the year around 200 tons of gold has moved out of GLD. However, over the same period, more than 400 tons of physical gold was sold and shipped through the Shanghai exchange alone. Investors concerned more with macro issues will be focused on the aggressive monetary policy being enacted by the Bank of Japan and the risk it poses to the stability of the global bond and currency markets. They will also be looking ahead to a time when massive deficit spending and endless QE begins to matter. As a result they will see right through the “everything is fixed” nonsense.
Spot market gold prices fell to a two-year low below $1400 an ounce Monday morning, extending Friday’s drop that took gold into bear market territory under the definition of a 20% fall from its peak.
Silver fell as low as $23.11 an ounce, its lowest level since October 2010, as stocks and commodities also fell while the Dollar gained.
Gold in Sterling meantime also fell to two-year lows near £900 an ounce, while gold in Euros fell to €1061 an ounce, its lowest level since July 2011.
Last Friday saw the Dollar gold price end the day down 5%. By late Monday morning in London gold had dropped another 6% from where it opened in Asian trading this morning.
“Previous episodes of gold dropping more than 3% in one day were typically followed by either a sharp rebound or a period of consolidation,” says a note from UBS.
“Given the forcefulness of the move over the last couple days, some correction may be in store up ahead. But given the damage to market sentiment, gold would have to work that much harder to rebuild trust. With no clear catalysts expected in the immediate future, the burden falls on physical markets and long-term holders: how they respond to these lower levels will be key in determining gold’s journey from here.”
The world’s largest gold exchange traded fund SPDR Gold Trust (ticker: GLD) ended Friday with 1158.6 tonnes of gold backing its shares, the lowest volume since April 2010.
Over in India, the world’s biggest gold buying nation traditionally, gold imports in the first quarter of the year were down nearly 24% from the same period last year, according to the Bombay Bullion Association. In January India’s government raised the import duty on gold to 6%.
Compared to the start of last week, the gold price is down around 12%, while silver is down 15%.
“The demise of gold is still at an early stage,” reckons ABN Amro commodities strategist Georgette Boele.
“Other assets will become increasingly more attractive as the growth outlook improves.”
“Some of the key pillars of the gold bull market look like they’re suffering fatigue,” adds Peter Richardson, chief metals economist at Morgan Stanley Australia.
“The gold market’s probably started to price in the prospect that beleaguered members of the Eurozone might be forced to sell gold to raise part of the funding, and there are much bigger holders in that category than Cyprus.”
“This may be the correction that gold needs,” Suggests legendary hedge fund manager Jim Rogers
“If it goes down enough, I will start buying it.”
“I love the fact that gold is finally breaking down,” adds Gloom, Boom & Doom Report publisher Marc Faber, “because that will offer an excellent buying opportunity…the bull market in gold is not completed.”
The Greek economy meantime is expected to return to growth by 2014, the troika of international lenders the European Commission, the European Central Bank and the International Monetary Fund said Monday.
Over in China the Shanghai Gold Exchange said Monday it may increase trading margins on gold and silver contracts as a result of sharp price falls.
China’s economy meantime grew at an annualized rate of 7.7% in the first quarter, down from 7.9% in the final three months of 2012, official figures published Monday show.
“Industrial production is unexpectedly weak and that’s the source of weakness in GDP,” says Tim Condon, Singapore-based head of Asian economic research at ING.
“Based on this, the consensus forecasts for GDP are going to be headed lower and we’ll certainly be looking at ours.”
Ben Traynor | BullionVault