Gold price slumps as US economy shows recovery

Mar 23, 2012

Investors swap safe-haven gold for money-making equities

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THE gleam of gold may be fading for investors. The price of the precious metal fell to a new low of $1,627.68 yesterday, down nine per cent since late February and its lowest price since 13 January.

The falling value of gold has stalled a decade-long bull market during which it rose from $253 per ounce in 2001 to a high of nearly $2,000 last year.

According to the Financial Times, the cool-down is a result of a shift in the mindset of investors encouraged by signs of improvement in the US economy.

People who saw gold as a safe haven in a time of economic uncertainty now want to put their money in riskier equities that are "geared towards economic growth".

"Sentiment towards gold is as low as it has been for many years, possibly since the rally started," said Kamal Naqvi, head of commodity investor sales at Credit Suisse. "For virtually the first time this cycle, buying gold is a contrarian trade."

Precious metals strategist at UBS, Edel Tully, said she thought investors were likely to take advantage of gold’s cheaper prices - but not to buy. "Instead, more are looking at the potential to short it," she told the FT.

Reuters puts the sell-off of gold down to worries about "continued contraction in manufacturing in both the eurozone and China".

Jeffrey Sica, chief investment officer of SICA Wealth Management with more than $1 billion in assets, said:  "Gold's been 100 per cent focused on the China slowdown."

How far could gold fall? The FT quotes a senior precious metals banker saying: "I wouldn’t be surprised to see $1,500."

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