Investors Lose Faith As Gold Prices Hangs In Balance

This has been a very adventurous year for gold bullion investors. Almost everything we knew about the precious metal has been put to test and no one is happy with the results: gold has lost more than 30% of its value since the beginning of 2013. Speculation gave territory to rumors and created a “new volatility”, while spot gold price manipulation has given good reason for many traditional investors to abandon the market altogether.

The plunge in gold prices has taken analysts by surprise, suddenly making price forecasts out-of-date. Julian Jessop, chief economist at Capital Economics pointed out that 

“… everything that had been driving gold up has gone into reverse”. 

Gold is used by investors as a hedging bet against rising inflation, but in the US – the world’s largest gold bullion market – fears of a reduction in Quantitative Easing damped concerns of higher prices because less central bank cash would ultimately flow into financial institutions. America’s handling of the Syria crisis helped the stock market, but gold just took a breather while this year’s FED policy, especially during the Government near default, did more damage than good to the precious commodities markets. Strangely enough, the stock market is moving at record highs and the investors’ trust in a stronger dollar seems to be revived.

Gold price estimates****

Goldman Sachs recently predicted that gold prices would fall to around $1,050 per troy ounce by the end of 2014. The Standard & Poor’s rating agency also cut its price forecast for gold earlier this year, although it was funding on higher prices, with a long-term forecast of $1,200 an ounce.

Chinese traders (maybe the market’s greatest hope to keep demand at high levels for the year) have put on hold their plans for buying gold, obviously waiting for a less volatile market while demand in India is muted by heavy taxation and purchases are almost at a standstill contributing to the steep drop in gold values this year; the spring and autumn surges seem to be a faint memory…

Demand for safe shelters is diminishing as the worst of the crisis in the Eurozone appears to be over. It turns out that for conventional Europeans, gold and silver appear to be a very risky investment. They believe that people who stashed money in gold were spoiled by positive returns and disagree with the “bulls and bears” stock market attitude that has undermined gold’s own status and is partly responsible for the recent weakness and volatility in prices at the same time as the markets are regaining confidence in the US dollar.

Gold bullion is impossible to write off****

“Judging where gold would sink to is like catching a falling knife”, says Julian Jessop. “Now is perhaps not the best time to try to call the bottom in the price of gold. Nonetheless, it seems premature to write gold off completely.”

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