Gold has performed so strongly for the last 10 or 12 years that everyone was quite surprised when its market value fell recently. While it retreated from its 2011 highs of more than $1900 last year, few people expected that it would lose so much money so quickly. The especially odd thing about its fall is that this happened when the market as a whole has suffered. Gold has usually moved in opposite direction to stocks at times like these. Many gold buyers are wondering what to do next.
2013: Gold Prices Drop Significantly
Gold had been holding steady around $1600 much of the first quarter, sliding slowly and unremarkably down into the mid-$1500 range. Then, starting on Friday, April 12th and continuing on the following Monday, gold prices fell down through $1400 and reached the mid-$1300 range. It was the biggest proportional loss for gold in 30 years, losing nearly 10% of its value in two business days.
Why Did Gold Prices Drop?
The news has been full of headlines about gold values and ads for gold investment have run all over the Internet and television. With inflation and government debt doing their expected damage to the global economy, gold seemed like the perfect safe haven for wealth. It was something solid that you could count on in rough times and seemed to have a lot more resilience than stocks and paper currencies. Even many skeptics have been surprised by the significance of the drop.
There are various theories about what got it all going and what is the real underlying cause. Some people think that it is all based on panic. A lot of investors are hoping that this is just another rare chance to get back into gold on the cheap and ride it back to the top. However, there are some serious motivations for the sudden change in market value, even if the decline is only temporary.
For example, Cyprus and its debt problems have been dominating the financial news recently. Last week, it became clear that Cyprus would sell as much as 10 metric tons of gold to handle its precarious situation. This flood of gold into the market is one very obvious cause for the drop in gold values. The law of supply and demand cannot be circumvented.
Will Gold Prices Drop Further?
With that explained, the big question concerns the depths to which the price will fall and how long it will stay there. A lot of investors with gold in their hands right now bought that ore for $1600 an ounce. They can only tolerate so much “temporary” loss in asset value. Some of them have surely participated in the panic selling that has characterized much of the last two business days.
No one can be sure about how far the price of gold could drop. However, even gold skeptics know that this will not last. Falling prices always bounce back. At some point, the bottom will be reached and it will be time to buy back into gold. As always, the investors who adhere to the time-honored principle of buying low and selling high will be the winners. Those who let the panic take over will probably not return fast enough to golf in order to recoup their losses.