Gold Hitting Two-Year Lows: Are Glory Days Done?

by on April 17, 2013 | ETFs Mentioned:

While bullish momentum continues to be a dominant force in U.S. equity markets, commodities have not fared as well so far in 2013. With major U.S. equity indexes continuing to push into uncharted territory, posting fresh highs not seen in over five years, investors’ appetites for risk have risen, making coveted safe haven assets like precious metals falter. Gold in particular has taken a heavy beating in recent days, with the commodity tumbling into bear market territory for the first time in nearly 12 years [see The Ultimate Guide To Resource-Specific "Third Generation" Commodity ETPs].

Just during Monday’s trading session, gold plummeted over 9%, shedding more than $100 per troy ounce and marking its biggest one-day percentage drop in 30 years. Since last Thursday, gold prices have fallen the most in two sessions in dollar terms since gold futures began trading in the U.S. in 1974. The precious metal did manage to rebound on Tuesday, as investors swooped in to take advantage of lower prices. 

Gold Quickly Losing Its Luster

During and after the financial crisis of 2008, gold-bugs emerged from nearly every corner of the market, with individual and institutional investors piling into the precious metal. And though the more recent eurozone debt crisis managed to boost prices, gold’s latest price movements have been alarmingly uncharacteristic. In just the last month, a slew of disappointing U.S. economic reports and the Cyprus debacle raised several red flags. Despite this, investors have not turned towards gold as a safe-haven asset like they have in the past [see 10 Questions About ETFs You've Been Too Afraid To Ask].


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Year-to-date, gold (GLD) has fallen 18.71%, while the S&P 500 (SPY) has climbed over 8.9%. Over the trailing 26-week period, the precious metal has lost 22%.

Gold Bugs vs. BearsGold

Because of gold’s rather unusual behavior in recent months, many analysts and investors have shied away from the metal. Just last week, Goldman Sachs turned even more bearish on the metal, once again slashing its short- and long-term gold forecasts for 2013 [see When Goldman Sachs Says Short Gold, It's Time To Buy].  

In a letter to its clients, analysts at the company stated “We see risk to current prices as skewed to the downside as we move through 2013. In fact, should our expectation for lower gold prices continue to prove correct, the fall in prices could end up being faster and larger than our forecast.”

Goldman now expects gold to fall to $1,450 an ounce by the end of the year, and by the end of 2014, the company believes the precious metal will falter even more, falling to $1,270. During Monday’s session, gold futures for April delivery fell to $1,360.60 an ounce.

Whether you agree with the overwhelming bearish outlook or not, investors should keep a close eye on gold, and other precious metals, as the rest of the year unfolds. Any indication from the Fed that it will scale back or stop its aggressive stimulus measures could have investors piling back into gold. 

Follow me on Twitter @DPylypczak.

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Disclosure: No positions at time of writing.