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Gold plunges, losses may accelerate

Gold

Gold has plunged over 11 per cent in the weeks since the U.S. election, and the losses will accelerate, according to some.

After briefly rising above $1,375 (£1,101.10) per troy ounce in early July, gold has given back nearly all of its gains on the year. At its Thursday lows of $1,124 (£900.10), gold was just 5.6 percentage points — $64 (£51.25) — away from wiping out all its gains on the year.

If gold ends the year in the red, it would the fourth consecutive year in which the yellow metal has logged a loss. It last witnessed such a streak from 1988 to 1992.

Gold sank this week after the Federal Reserve announced it planned to raise U.S. interest rates for the first time this year and expected three more hikes in 2017. Treasury yields surged, as did the dollar index, pushing gold down.

Gold could be due for a sustained period of losses, as its current levels bear similarities to those of the early 2000s, according to one technical analyst.

“The factors that have pressured it have indeed been the stronger dollar, and I think gold is selling off as a safe-haven asset as well, with the market embracing more risk, and I think that can continue,” Ari Wald, head of technical analysis at Oppenheimer, said Thursday on CNBC’s “Power Lunch.”

Examining a long-term chart of gold, Wald points to a spike the metal saw in 1999 from about $250 (£200.20) to just over $300 (£240.24) per ounce.

“After that spike, gold ultimately settled back into its base and it really required another two years of basing until it really started to break higher again. We think we’re in a similar basing period, where it’s probably, at best, dead money here, even if it is coming into some sort of support. That prior low at $1,045 (£836.84) I think is the important level here,” Wald said, adding he would “look elsewhere” for investment opportunities.

Gold is generally considered a “safe haven” that people turn to in times of turmoil. And with stocks turning higher, investors appear to see less of a reason to own the metal.

Erin Gibbs, equity chief investment officer at S&P Global said, “As we know, gold is really priced according to investor sentiment, the dollar and interest rates. And right now, sentiment, interest rates and everything else is going up. There’s no reason to have that safety bet or that insurance with gold. So for us, we see them continually to be in this downtrend — no big turnaround anytime soon”.

Paul

The author Paul