Abu Dhabi: Gold entered a bear market last week with prices slipping to their lowest level in 20 months amid fears of greater downside risks with global investors betting big on equities.
Spot gold tumbled to hit an intra-day low of $1,493.35 per troy ounce on Friday, down 22.3 per cent below its all-time intra-day high of $1,921.41, before recovering partly to end the day at $1,501.40.
Experts fear there may be more gold selloffs in the coming weeks as a strengthening US dollar diminishes the precious yellow metal’s ultimate safe haven appeal. In addition, the Bank of Japan announced on April 4 that it would spend 60 trillion yen ($605 billion) in each of the next two years buying bonds and other assets, giving equities purchasers a much needed boost.
Furthermore, speculation that the US Federal Reserve could soon end its bullion-friendly bond buying programme and news that Cyprus would sell its 13.9 tonnes of gold reserves to fund its bailout gave markets a signal other beleaguered Euro zone members facing cash crunch could do the same in the coming months. This was enough for bullion traders to push the sell button. Goldman Sachs advising clients to short gold, as it lowered it 12-month forecast to $1,390 from $1,550 a troy ounce, also helped build the gold adverse sentiment.
“Gold has slipped around 7 per cent so far this year and is matching a downtrend in other commodities and equity markets ahead of the US retail sales, which will be monitored by the market to test the health of the world’s biggest economy,” said Pradeep Unni, senior relationship manager at Dubai-based commodities trading firm Richcomm Global Services DMCC.
In a research note, Unni said heavily indebted euro zone nations such as Italy and Portugal could come under pressure to put their bullion reserves to work.
Gerhard Schubert, Head of Commodities - Wealth Management, Emirates NBD said in his research only a close above $1,776 would re-establish the bull market for gold.
“(The) expected stronger physical demand from India and China, might not be able to stem the flow of further liquidation from longs exiting the gold market in favour of other asset classes, most likely to be investing in equities,” he added.
