Gold drops under $1,600, may fall further

It's gold's fifth straight decline, as precious metals and crude oil take a dive. Worries the Fed may end its policy of low-interest rates and a rising dollar are 2 reasons for the slump. Stocks tumble as well.

By Charley Blaine Feb 20, 2013 4:53PM
Small Stack of gold ingots © Anthony Bradshaw/PhotographerUpdated: 5:14 p.m. ET

Gold
(-GC) dropped below $1,600 an ounce on Wednesday, reaching its lowest level since July.

There's a chance the metal could drop to as low as $1,500, especially after minutes from the January Federal Reserve meeting suggested the central bank could end its low-interest-rate policy sooner than expected. 

Stocks were affected by the metals slump and suffered their biggest losses in at least three weeks.

Gold settled at $1,578 an ounce in New York, down $26.20, or 1.6%. It fell below $1,560 an ounce in electronic trading after the close of New York trading. Most global trading in gold is done electronically. The loss was gold's fifth straight and its longest losing streak since December 2011. It's down 5.8% this year.

Silver (-SI) and platinum (-PL) suffered even larger losses, and exchange-traded funds were also taking hits. Silver dropped 80 cents, or 2.8%, to $28.62, and is down 5.3% this year. Platinum slid $50.40, or 3%, to $1,647.10. It is up 6.8% in part because of shortages due to strikes at South African mines. Stocks also moved lower.
"While I remain a long-term bull on gold prices, I have also come to the realization that gold prices may be locked in a corrective cycle for quite some time," Michael Sacchitello, a technical analyst at Stone & McCarthy Research Associates, told The Wall Street Journal.

One reason for gold's decline was bullishness about the U.S. economy among many investors, despite worries that rising gasoline prices and higher interest rates could dampen consumer spending and the larger economy. A strengthening economy would draw money from gold as investors sought higher returns.

Home builders broke ground in January on the most U.S. single-family homes in more than four years. Permits for future construction also rose, the Commerce Department reported on Wednesday.


"The economic data is telling us that the economy is definitely showing signs of improvement," money manager Vedant Mimani told Bloomberg News.

Also pushing gold lower: a strengthening dollar against the yen, euro and British pound. The U.S. Dollar Index, which tracks the greenback against a basket of currencies, was at 80.815, up 0.3% for the day. It's also up 2% in February.

Gold and other precious metals prices often move lower when the dollar is stronger.

A third pressure: Gold's 50-day moving average could fall below its 200-day moving average, a phenomenon called a "death cross." That could a signal that gold will fall still further.

Gold's peak price intraday was $1,917.90 an ounce on Aug. 23, 2011. Its peak close was $1,891.90 on Aug. 22, 2011. It began the millennium at $283 and had its first close above $1,000 on March 17, 2008.

Meanwhile, the SPDR Gold Shares (GLD) ETF dropped $3.89 to $151.44. The ETF is down about 2.8% this week and 6.5% on the year. The iShares Silver Trust (SLV) was down 85 cents to $27.59. It's down 9.4% in February and 6.1% this year.

Newmont Mining (NEM), the largest U.S. gold miner, was off $2.34 to $40.56. Freeport-McMoRan Copper & Gold (FCX) was down $2.04 to $32.22.

The Fed minutes accelerated gold's slump and weighed on stocks as well. The Dow Jones industrials ($INDU) were down 108 points to 13,928. The Standard & Poor's 500 Index ($INX) had dropped 19 points to 1,512, and the Nasdaq Composite Index ($COMPX) had fallen 49 points to 3,164.

The Dow's loss was its largest since Feb. 4. The S&P 500 suffered its largest decline since Nov. 14. Nasdaq absorbed its biggest loss since Nov.7.

Google (GOOG), which had closed Tuesday above $800 for the first time, fell back $14.39 to $792.46. Apple (AAPL) fell $11.14 to $448.85.

The minutes suggested that a lively debate has emerged among policy makers on the Federal Open Market Committee, the Fed's policy making body. The Fed is officially pursuing a policy of so-called quantitative easing. That means it is buying some $85 billion a month in Treasury and mortgage-backed securities to keep longer-term rates low. It expects low rates into 2015.

The target for so-called federal funds -- what banks lend each other on an overnight basis -- is 0% to 0.25%. Just about all domestic interest rates derive from the fed funds rate.

The minutes, however, show a policy that is at least being examined closely.  Some FOMC members worried it could reignite inflation beyond the Fed's stated goal of 2% a year. Others wanted the Fed to vary its purchases depending on financial market conditions. Still others warned that changing the policy abruptly and letting rates rise quickly could derail the economy.

The Fed's low-rate policy has pushed U.S. mortgage rates to around 3.7% -- while a four-year auto loan rate is around 2.9%, according to Bankrate.com. Getting approvals on home mortgages continues to be difficult. The 10-year Treasury yield, which directly influences mortgage rates, is about 2.04%, up from 1.76% on Dec. 31.

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Tags: GLDIAU
17Comments
Feb 21, 2013 11:41AM
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All bubbles pop.   Brokers were selling gold on TV knowing they could make a quick buck of suckers who were scared.

Bond market is next when new bond interest rates go higher and more suckers are left holding the bag.
Feb 21, 2013 9:20AM
avatar

18 months ago I sold all my gold except for my family's jewelry. I sold it for $1,896.76 an oz.,,, a LOT of it. CHA-CHING! Most of it I had invested in many years before at prices around $500, then a lot more at $700 and the last time some at $950, I then sat on it, watched prices go through the roof and then sold it at the precise time to make a KILLING. Man I'm GOOD! Ha, ha, ha

 

And here I am, just waiting for the right time to make my move again and make another killing, which I WILL. It's not my fault that all of you are idiot investors! And gold is the only thing I have ever invested in my entire life. I live very comfortably, thanks to my savvy investments in gold. I will strike again when the time is right!

 

Many hugs, kisses and pats on the back to myself for being so smart!

 

I LOVE YOU GOLD!

 

LONG LIVE GOLD!

 

LATER YOU IDIOT INVESTOR LOSERS! Har, har, har

Feb 21, 2013 9:15AM
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I am no finance wizard,just thinking out loud here. If the fed is adding huge amounts of dollars to the money system,it would make sense that the dollars would be worth less. So,let's buy gold (world recognized exchange medium). But, unless we know how much gold will be mined,sold off or dumped into the market,then aren't we just trading one risk for another? Without sounding too much like a "prepper" here, could buying trade-able goods be the answer?

Feb 21, 2013 4:03AM
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Oct 2008, Gold hit a low of $681 and in Sept of 2011, a high of $1920.8, an increase of $1239.8.

Since  Sept 2011, it has moved sideways to date.  Any commodity that has that type of a run is going to have a correction. Gold normally moves in 50% retracements meaning in this case, $1300 would be that mark.  Currently, it's at $1562 and is down $358 and according to the Slow Stochastic, even though it's getting close to it's bottom it still has room to fall; how far is anyone's guess, but it's possible it could get there.  This is a normal cycle, the Dow in 2008 did the same thing, fell to it's  50% mark from 14,000 to 6460, just below 7000, and rebounded to where it's at now at 14,000, five years later. 

 

It's very possible it could repeat itself again.  The Market is cyclical, that's how it works.  For price to rise it has to fall and vice versa.  All the  tinkering and tampering doesn't help, but the Market will do what it has too.

Feb 20, 2013 11:11PM
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Only debasing the US currency by an announced 85 billion per month.  Japan, Euro, all other major currencies are in a war to get exports.  Pretend the dollar is worth a dollar.  enjoy the show for the next few years.

Feb 20, 2013 7:40PM
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Gold and silver have been and will continue to be good long term investment in a diversified portfolio.  If it is not tell me why you see so many entrepreneurs out there willing to buy all the gold and silver you want to sell them - notice the guys on the street with the 'WE BUY GOLD' signs?  There are enough other signs out there that inflation is coming and the economy will be on a small and slipper slope in the next 2 years - gold and silver will be the hedge when these times arrive.
Feb 20, 2013 7:32PM
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Gold peaked 18 months ago. It is down 18% since trillions of dollars MORE have been created out of thin air. But printing dollars is supposed to make gold go up not down. The gold junkies must be on suicide watch. The dreaded deflation is getting all worked up. The storm is inevitable.
Feb 20, 2013 6:29PM
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The shorts are making the money now.  It's all about timing and luck.  Sell your losers Friday and stay in cash.  The stock market is rigged.  Long term investors, it's time to take profits.
Feb 20, 2013 6:17PM
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“www.miningweekly.com/article/power-labour-costs-make-sa-an-expensive-mining-destination-gold-fields-2012-02-17”

 

maybe a better analyst

Feb 20, 2013 6:03PM
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Good! I plan on buying more gold and silver. You can NOT tell me that this 'bullish' outlook on our economy is based on common sense performance. The dollar is losing value with Ben 'Dover' Bernake's presses running overtime. This economy isn't really following the standard dynamics that you learned in business classes back in college. It's smoke and mirrors -- a bubble. As my grandmother always said: gold and silver may not be great as investments, but they're sound as a hedge against inflation. And you know inflation is coming.

Feb 20, 2013 5:41PM
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Tower we're going down...this is FR Airlines (FR - Fed Reserve)
Feb 20, 2013 5:29PM
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Republicans i thought gold was going to 5,000

LOL
Feb 20, 2013 5:06PM
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Where`s the gold bugs now?All those gloom and doom bears that have been saying

the Dow is going down to 1000.They are only 13,000 points off.The answer is to

buy good stocks.

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