Gold and silver prices crushed; Opportunity for investors presents


Gold prices have suffered their sharpest fall since the 1980s yesterday, closely followed by silver. This development was caused by fears among investors that the precious metal’s decade-long bull run has ended, fuelled by last week’s investment banks’ forecasts downgrades.

At present (8am Dubai time), gold continues on the way down and in electronic session trades at $1,345 per ounce, 1.12% lower than yesterday’s close of $1,361.10. Silver price follows with sharper declines. The white metal now trades at $22,61, 3.22% lower than yesterday’s close of $23,36.

Spot gold prices tumbled by more than $140 an ounce, in a few hours on Monday amid a rout in metals markets, while silver fell nearly 12%.

Gold’s drop since Friday to a two-year low of $1,355.80 a troy ounce is the sharpest two-day tumble since 1983, when the last gold bull market was unravelling.

Gold has enjoyed a stellar run over the past decade. Prices surged more than sevenfold since 2001 to an all-time high of $1,920 a troy ounce in 2011, as investors turned to the yellow metal as a haven from turmoil in the rest of the financial world.

But as fears over the eurozone debt crisis recede and investors bet on a recovery in the US, sentiment towards gold has suffered. Citi Research has called an end to the supercycle for commodities last Friday. In a report, Citi said it expects 2013 to be year in which “the death bells ring for the commodity supercycle after its duly noted sunset.” A supercycle refers to decades-long price movements.

Credit Suisse, Société Générale and Goldman Sachs have all called the end of the bull market in recent months by issuing notes to investors and revising price forecasts for 2013 and 2014 on the downside, although not that sharply.

At present the market is conditioned for more investors to opt out from long holdings, although especially the current silver price of $22,61 an ounce is a real rare opportunity for long term investors. Silver is extremely volatile and can appreciate by between 10% to 25% in a matter of a week. At present, the price is a way below all time high of about $50 registered back in September 2011.

However, continuous quantitative easing by the world’s central banks would ultimately lead to higher inflation, some analysts say. Federal governments have been printing money at an unprecedented rate creating demand for gold as an alternative currency and they continue to do so until today, without declaring plans to change their policies. It is this expectation of global paper currency debasement which makes gold an attractive long-term investment.

Gold is a still a strong hedge against inflation and buying into it at the current or a little lower price levels, perhaps somewhere above $1,200 an ounce, it may still be a smart move for long term investors.

Some traders commented that investors had lost patience with arguments that higher inflation is inevitable. This may be the case in some parts of the world, but not in Dubai, for example. The QE is not inflating the world economies like governments have hoped, some traders say. Commodities that have had inflation priced into them for a long time are struggling, according to them. However, this is rather temporary event that occurs in a number of economies only.

Traders also say that Cyprus’ decision last week to sell a portion of its gold reserves as part of a bail-out deal had dealt a sharp blow to confidence in the market, arousing fears that other eurozone countries with much larger gold reserves could follow suit. This is somewhat doubtful suggestion and an extreme case solution. So far the European governments did not demonstrated willingness to dump their gold holdings, but rather to use it as loan collaterals, as suggested by the World Gold Council in the fourth quarter of 2012.


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