Gold Plunges 5% to 21 Month Low

April 12, 2013 at 17:10


Gold plunged more than 5 per cent to a 21-month low, as traders placed bearish bets on a recommendation by Goldman Sachs, while worries about selling by Cyprus also depressed prices.

The yellow metal fell as much as 5 per cent, hitting a low of $1,485 a troy ounce, the lowest level since July 2011. “Gold is looking sick at the moment,” said Ross Norman of Sharps Pixley, a gold bullion dealership.

Gold prices, which have been weak since the start of the year due to selling linked to exchange traded funds, were hit this week by a bearish recommendation by Goldman Sachs. The Wall Street bank lowered its gold price forecasts and recommended clients initiate a “short” position, or a bearish bet.

Publishing year-end targets of $1,450 a troy ounce in 2013 and $1,270 in 2014, the bank said: “We see risks to current prices as skewed to the downside as we move through 2013,” adding that “the fall in prices could end up being faster and larger than our forecast”.

Uncertainty surrounding possible gold sales by Cyprus to help finance its €13.5bn contribution to a €23.5bn bailout package also continued to unnerve the gold bullion market.

A draft bailout document said “the Cypriot authorities have committed to sell the excess amount of gold reserves owned by the Republic” in a sale expected to generate €400m of extra state revenue through “an extraordinary payout of central bank profits”.

Sales volumes are expected by analysts to be about 10 tonnes, but the initial announcement raised fears that other eurozone countries may look to sell their gold reserves in order to shore up their finances.

However, comments by the central bank after the details of the bailout package including the gold sale, were leaked, further widening an existing rift between the Cyprus central bank and the Nicosia government.

Other precious metals were also weak, with silver losing 5.7 per cent to $26.05 a troy ounce, while oil prices were also hit by fears of lower demand, with ICE May Brent falling more than 3 per cent to $101.09 a barrel.