Gold suffered its biggest one-day fall Wednesday. The yellow metal plummeted $59, or 5.7%, to $945.30 an ounce after settling at a record high of $1,003.20 an ounce on the Nymex Tuesday.
"It's not unusual for gold to pull back like this over a few days," said Joel Crane, a commodity strategist at Deutsche Bank. "This is obviously a major pullback ... but these are unusual markets so expect the unexpected."
Bullion started sliding Tuesday after the Federal Reserve cut interest rates by 0.75%, instead of the widely anticipated 1%. Investors took their profits in gold to offset losses in other areas of the market, among other psychological and technical reasons, Crane said.
"A lot of technical barriers were broken, so a lot of stop-losses were triggered," Crane said. "We're seeing a lot of long contract liquidation. Once it starts falling, people jump."
Switched For Equities
Those who were playing the recent momentum in gold, such as hedge funds, sold the commodity to buy equities, which became more appealing after the rate cut, said Thomas Winmill, manager of Midas Fund. His $282 million fund focuses on companies that produce metals and natural resources.
StreetTracks Gold Trust (GLD) fell 3.33 to 93.17 on three times average volume. It and iShares Comex Gold Trust (IAG) both lost about 6% this week after barely clearing $100 Monday. The selling in both stopped right at their 10-week moving averages.
|
|
Gold Miners Tumble
Market Vectors-Gold Miners (GDX) sank 3.02 to 49.37 on above-average volume. The ETF fell through its 10-week moving average for the first time in five weeks. It settled 13% below its all-time high of 56.87. It dived 17% to 24% from peak to trough in its four prior corrections.
S&P Metals & Mining (XME) skidded 5.93 to 66.44 in heavy volume. It also pierced its 10-week moving average. In its deepest correction since trading started in June 2006, it crashed 27.7% off its high.
The price pullback presents an opportunity for bargain hunters, analysts said. The macroeconomic reasons, such as a weak U.S. dollar, rising inflation and uncertainty in the credit markets, which turned investors onto gold this year, still exist.
"Demand from industrial use and jewelry remain strong," said Crane of Deutsche Bank. "Most precious metals markets remain in a supply side deficit primarily because of mining problems in South Africa."
Don MacLean, an analyst at Paradigm Capital, sees other circumstances that have historically boosted gold prices. "Central banks are flooding markets with liquidity. Risk spreads are at record highs. Interest rates in major economies are declining," MacLean said in a client note. "The classic inflation refuge and destination for capital, real estate, is not currently attractive in many developed economies."
Copyright © 2008, Investor's Business Daily, Inc. All rights reserved. |
Prospectus
