Precious metals are taking it on the chin yet again Monday morning.
Gold futures are down more than 6%, earlier falling below $1400 an ounce for the first time since March 2011. Silver is down about 10% and is hovering around a two-and-a-half-year low. The sharp move lower comes after gold officially entered a bear market on Friday, falling more than 20% from its record peak.
Weaker-than-expected GDP data in China, the world’s second-largest buyer of gold, have added to the precious metal’s woes. Gold tends to be bought as a store of wealth in China, and weaker growth there could hinder demand for the metal.
“There is no real culprit in the demise of gold other than massive liquidation amongst all of those who believed that concerted actions by central bankers around the world would stoke inflation,” says Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. “The lack of evidence pointing to monetary price instability has left them wanting, yet worse still, searching desperately for a bigger fool to buy the same redundant argument.”
The slide in precious-metal prices accelerated to the downside last week amid concerns that U.S. stimulus may be cut short and news that Cyprus may sell a portion of its gold reserves to fund part of its bailout package spurred a massive selloff. A call by Goldman Sachs GS -1.78% to short gold earlier that week also dented the metal’s appeal.
“The final straw came on Friday with the mere suggestion that the euro zone’s bailout candidates could help pay their own way by selling some of their own gold,” Wilkinson says.
While the $400 slump in gold prices since October may sound like a lot, Wilkinson says it isn’t entirely unusual. “While that move took six months, it only took five months through September 2011 for gold to accelerate its upside move by an identical magnitude to its record high,” he says.