Gold Slumps to Multiyear Low
Gold nosedived Friday as the Bank of Japan redoubled efforts to revive its sluggish economy.
The central bank roiled global financial markets with a surprising, massive increase in its bond purchase program. By injecting an additional 10 trillion to 20 trillion yen into the financial system, it hopes to boost spending and growth.
The move caused the U.S. dollar to strengthen against the yen, sparking gold’s plunge.
“Investors felt comfortable allocating to riskier assets today,” said Kevin Mahn, president of investment service provider Hennion & Walsh, which oversees more than $ 670 million in client assets. They backed away from haven assets, including precious metals and U.S. Treasuries, he added.
The spot gold price fell 2% to $ 1,172.10 an ounce at the close of New York trade. It broke through both the psychologically important $ 1,200 per ounce mark and its four-year low of around $ 1,180 .
SDPR Gold Trust (ARCA:GLD), the largest ETF backed by bullion, fell 3% to 112.66.
The precious metal’s woes began earlier in the week. The Federal Reserve ended its bond-buying program as expected, citing a better outlook on growth and jobs. And GDP figures for Q3, released Thursday, showed a surprising 3.5% expansion in the U.S. economy.
GLD lost 3% this week on these signs of a healing economy. It is 15% off its old high of 133.69, set in March.
Market Vectors Gold Miners (ARCA:GDX), tracking a basket of large gold miners, and Market Vectors Junior Gold Miners (ARCA:GDXJ), tumbled 6% each on above-average volume.
“Gold and other precious metals could certainly fall further” if the bull run in equities continues, said Mahn. But they may offer a better hedge against market volatility than Treasury securities, he added.
With quantitative easing at an end, Treasuries “will likely suffer (price) declines” when the Fed — a major holder of these bonds — starts to offload them, Mahn said.
Gold also is trading well below its all-in cost of production, according to Mike McGlone, director of U.S. research for ETF Securities, a commodities expert.
He attributed the sell-off in gold bullion largely to a sustained rally in the broad stock market since March of 2013.
“How long this trend is sustainable, we don’t know,” McGlone said. “For long-term value investors, gold is becoming very attractive.”
Silver has been even harder hit recently, Kitco reported Friday.
Spot silver prices slipped 2% to 16.18 an ounce. The price fell through key support at $ 16 before rallying.
IShares Silver Trust (ARCA:SLV)fell 2% to 15.50. It slumped 5% in October vs. GLD’s 1% decline.
Global X Silver Miners (ARCA:SIL) gave back 4% to 8.68, leaving it with a 19% loss year to date.
SLV fell below its 200-day moving average line, a bearish signal, Aug. 4.