Online gold traders are catching their breath after the precious metal fell to a two-year low on Tuesday, settling at $1,321 in Asian trading. However, gold traders, seeing an opportunity, rushed through the selling breech at the end of the trading day and bought gold, raising the price back up to $1,387.
The eye-popping events of the past three trading sessions have gold traders scratching their heads, assessing their gold metal positions and pondering how to proceed next. What’s known so far is that this three-day drop was the largest in 30 years. After the dust cleared, gold had lost nearly 15 percent of its value in three trading sessions. The price of gold is now down about 28 percent since its all-time high of $1,920 in September 2011.
Gold Sell-Off a Buying Opportunity?
One gold analyst at Coutts called the sell-off of gold “an exaggeration” and a buying opportunity. “The gold price represents a good buying opportunity,” said Gary Dugan, the head of Asian investments at Coutts. “We believe that some central banks in emerging markets may be minded to buy at these levels.”
People are out there who still want to sell gold, said David Govett, the chief gold strategist at Marex Spectron.
Some analysts are blaming the plunge on poor economic forecasts coming out of the U.S. and China. There is sentiment that governments are repeating the ill-fated mistakes of the first quarter. That sentiment was reflected by the price of oil falling to under $100 for the first time in nine months. The overall pounding of commodities and stocks is reflecting the concern that the global economic recovery is weak and perhaps not sustainable.
Other analysts are blaming the gold drop on fund managers dumping bullion from their portfolios. It’s also possible that central banks are using the Cypriot crisis as an excuse to dump excess gold holdings. On Monday, 92 million shares were traded on the SPDR Gold Trust, which was the highest daily volume in history.
Online gold traders will also need to assess whether the sharp sell-off of gold was rigged. In an intriguing article written by Thomas Pascoe in the UK’s Telegraph, Pascoe wrote that “something doesn’t add up.”
He plainly states that Cyprus being forced to sell off its gold, whose value is estimated at $750 million, isn’t enough to move the world’s most liquid market.
Pascoe argues that the move by the eurozone to confiscate fiat money in Cyprus shows people that there is a major risk politically in holding large amounts of cash, especially for nations that are in a cash crisis. So what is moving people to dump gold in favor of fiat money that might be seized?
On Friday, more than 500 tons of paper gold was dumped into the market, Pascoe said. The likelihood that these sellers were making a profit suspends reality. Pascoe speculates that the gold dump was designed to save a British trading house whose short position couldn’t cover expiry commitments.
Gold traders will need to sift through various speculative and contradictory data and apply that to whatever fundamentals they use to make gold investment decisions. Nobody ever said that making money was easy.