The golden metal is being crushed by the paper it despised. The dollar index is at a four-year high and the gold price at a four-year low, having fallen nearly 40 per cent from its peak to below $1,200 an ounce. It is hard to see gold avoiding a swift plunge below $1,000, unless turmoil in other markets turns the precious metal into a temporary haven.
The latest precipitous swoon, down $100 since mid-October, has an element of irony. Though the end of US quantitative easing (QE) is the chief source of the price decline, additional Japanese money-printing only did further harm by driving the dollar to a seven-year high against the yen. Gold functions as an alternative currency, hence its attraction when investors sought haven from a depreciating dollar, and the reversal now. It still has much more to fear when US interest rates eventually rise, further supporting the greenback.
Gold speculators continue to run. Holdings in SPDR Gold Trust, the top gold-backed exchange-traded fund, have slumped to a fresh six-year low.
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For some gold miners the price of the metal is now below the cost of production. Mine production was up by an annual four per cent in the first half of this year but falling prices do seem likely to begin to restrict supply, offering eventual support for a recovery. A firmer Indian rupee - India being a critical market for gold - could also eventually help. But anecdotal reports do not yet suggest firmer demand in India and the largest consumer, China.
Buyers might be waiting for still lower prices. They are almost certainly right to. Gold's best hope is to find a temporary perch. The yellow metal flew highest on QE and zero interest rates but global bonds and equities have not done so badly either. Panic elsewhere could give gold a temporary respite. Even that wouldn't be one that lasts.
